[Updated 9/28/10 2:05 pm. See below.] There’s little surprise in the announcement today by San Diego’s Cypress Bioscience (NASDAQ: CYPB), which says its board of directors has “unanimously rejected” the slightly higher buyout offer that Ramius Value and Opportunity Advisors made two weeks ago. But Cypress is doing a far better job in explaining itself, especially in asserting the Ramius offer would be financed by Cypress assets to the detriment of shareholders.

The New York private equity fund, a subsidiary of the $7.8 billion Ramius fund group, appealed directly to Cypress shareholders on Sept. 15, when it increased its offer by 25 cents a share, to $4.25, in a Wall Street confrontation that began as an unsolicited buyout offer two months ago. Cypress, which says it considered the offer carefully with its financial and legal advisors, says today the Ramius offer “grossly undervalues” Cypress’ business prospects, and is “highly illusory.” Cypress recently shifted its business strategy to focus on drug development for central nervous system disorders.

In its statement this morning, the Cypress board says it is advising stockholders not to sell their shares to Ramius and to withdraw any previously tendered shares from Cypress. Addressing a point of concern among shareholders over the company’s change in strategy, the San Diego biotech says it’s planning “a broad evaluation of Cypress’ strategic alternatives” to maximize value for all Cypress shareholders.

Cypress also cited a number of specific objections its board has to the Ramius deal, including:

—The Ramius offer is designed to provide Ramius “an extremely attractive return… at the expense of all other Cypress stockholders.” Cypress, which has no debt, asserts that the buyout offer would be funded “almost entirely” by Cypress’ own cash and other assets, including the monetization of its royalty from its milnacipran drug for fibromyalgia, which is marketed as Savella. As a result, Cypress says Ramius would provide only about $17.8 million, or 51 cents a share, of its own money in the deal.

—By financing the buyout in this way, the Cypress board contends the Ramius deal transfers the value of Cypress from its shareholders to Ramius.

—Cypress says the Ramius offer is an opportunistic attempt to buy Cypress shares when they are trading at a 43 percent discount from the company’s 52-week high. The company also maintains the Ramius offer includes numerous conditions that make it “highly unlikely” the deal can close on Oct. 13, when the offer officially expires.

[Updated to reflect Ramius response.] A Ramius official said this afternoon the firm was studying the Cypress statement and was not prepared to comment at this time.

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[Corrected 9/16/10, 2:00 pm. See below.] San Diego’s Cypress Bioscience (NASDAQ: CYPB), which has been stubbornly refusing to negotiate or even meet with a private equity firm over an unsolicited buyout offer, says it will review the fund’s increased offer “consistent with its fiduciary duties.”

Ramius Value and Opportunity Advisors, a subsidiary of the $7.8 billion Ramius fund group in New York, says in a statement today that it is taking its increased offer of $4.25 a share directly to Cypress shareholders, “given the board’s continuing refusal to negotiate with us.”

Cypress, which responded within hours in a statement, says, “stockholders are advised to take no action at this time pending the review of the tender offer by the Cypress Board of Directors.”

The activist investment fund, which holds about 10 percent of Cypress shares, initially offered to buy Cypress at $4 a share in July in an unsolicited bid that was valued at nearly $160 million for all outstanding shares. The sweetened offer would put the overall value of the deal at about $164 million for all outstanding shares (Ramius obviously would not acquire the shares it already owns).

[Corrects terms of milnacipran deal] Cypress spurned the Ramius offer in August, saying it “grossly undervalues Cypress’ current business and future prospects.” In an additional defiant move, Cypress also announced that it was withdrawing from its commercial business and “discontinuing” its rights to co-promote milnacipran (Savella), its drug for fibromyalgia (pain in the muscles, ligaments, and tendons) with Forest Laboratories. Forest is paying Cypress $2 million to “facilitate” the end of Cypress’ role, and Cypress says it is retaining its royalty on sales and other rights. As part of that move, Cypress laid off 123 people, or 86 percent of its workforce.

In a later announcement, Cypress said it had acquired a potential treatment for the core symptoms of autism from Bothell, WA-based Marina Biotech (NASDAQ: MRNA) and an electronic nicotine delivery device from Alexza Pharmaceutical (NASDAQ: ALXA) of Mountain View, CA, developed to help smokers quit smoking.

Since then, two other institutional investors have joined the brewing proxy battle by issuing open letters that were sharply critical of the biotech’s management and … Next Page »

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Here’s one solution to a suitor’s unsolicited buyout offer: Make yourself ugly, at least to that suitor.

San Diego’s Cypress Bioscience (NASDAQ: CYPB) got a $160 million cash buyout offer last month from Ramius Value and Opportunity Advisors, part of the New York-based, $7.8-billion Ramius hedge fund group.

Ramius, which had accumulated a 10 percent ownership stake in Cypress, made its offer on July 19. The San Diego biotech had little to say at the time, except that its board was reviewing the matter.

Cypress responded this week with two announcements. In the first, Cypress says it is withdrawing from its commercial business, including a deal with Forest Laboratories  to sell milnacipran, its fibromyalgia drug marketed as Savella. Forest agreed to pay Cypress $2 million to discontinue its role in promoting milnacipran, although Cypress says it retained royalty and other rights. As part of the move, Cypress says it also is laying off 123 people, or 86 percent of its workforce. In the statement, Cypress CEO Jay Kranzler says the biotech has been contemplating its “withdrawal from the commercial market” for some time as part of the company’s “renewed strategic focus on CNS drug development.”

In a second statement yesterday, Cypress says its board has unanimously rejected the buyout. Cypress says Ramius’ offer to buy all the stock it doesn’t already own at $4 a share “grossly undervalues Cypress’ current business and future prospects and consequently is not in the best interests of Cypress’ other stockholders.”

It’s worth noting that in its statement, Cypress already has recast itself as “a pharmaceutical company engaged in the development of innovative drugs to treat central nervous … Next Page »

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San Diego’s Cypress Bioscience (NASDAQ: CYPB) says in its Q1 financial results today that it began shipping its new drug milnacipran HCL (Savella) last month. The drug gained FDA approval earlier this year for treating fibromyalgia. Cypress says its first-quarter loss widened to $9.2 million from $2.9 million in the same quarter last year. The biotech has about $160.4 million in available cash.

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San Diego’s Cypress Bioscience (NASDAQ: CYPB) and New York’s Forest Laboratories (NYSE: FRX) said Friday their launch of a new drug for treating fibromyalgia, which was expected to be available this month, has been delayed by several months. The companies now say they expect to ship the recently approved drug milnacipran HCL (Savella) to wholesalers and pharmacies by mid-2009.

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Cypress Bioscience (NASDAQ: CYPB), the San Diego-based developer of a drug for fibromyalgia, said today it has acquired technology from Cellatope to diagnose and monitor hard-to-detect autoimmune diseases like lupus. Cypress and its partner, New York-based Forest Laboratories, won FDA approval last month for milnacipran (Savella) as a treatment for a chronic muscle pain condition called fibromyalgia. Cypress plans to market that drug to rheumatology specialists, along with a range of other products to those doctors.

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Many investors are nursing their wounds in the recession, so some of the big technology investment conferences have been canceled—or the investment banks that sponsored them no longer exist.

That’s why the turnout at Roth Capital Partners’ 21st annual growth stock conference has been a pleasant surprise for Aaron Gurewitz, a managing director at Roth’s headquarters in Newport Beach, CA. The conference started yesterday, and continues today at the Ritz Carlton in Dana Point, CA.

“We set our expectations really low for this year,” Gurewitz says, and it’s definitely exceeded expectations.” Almost 1,800 investors and analysts registered for the financial conference, which is down about 15 percent from last year’s attendance. One explanation could be that more private equity firms signed up, Gurewitz says. Another factor may be that the Roth conference is focused on the smallest public companies—which traditionally have the highest potential for exponential growth.

Fewer companies are presenting, though. Organizers say executives from 212 companies are making presentations to investors this year—compared with 320 companies last year. There are many more companies focused on energy and media this year, and Gurewitz says investor interest is especially high in companies that are already doing business in China.

Several San Diego biotechs made presentations yesterday, and they had mostly good things to say. (Why attend otherwise, right?) Here is a sampling:

—Cadence Pharmaceuticals (NASDAQ: CADX), which also reported a private stock placement yesterday, is getting ready to apply for FDA approval of its germ-killing Omnigard gel. CEO Ted Schroeder says the company is expecting results of a Phase 3 clinical trial of its gel by the end of March. If the results are positive, Schroeder says Cadence anticipates … Next Page »

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Cypress Bioscience (NASDAQ: CYPB) shares are up sharply today after the San Diego drug developer and its New York partner announced last night the Food and Drug Administration approved their drug for fibromyalgia. As Luke reported in October, Cypress started down this path in 2001, when it licensed rights to milnacipran, (Salvella) a drug approved outside the U.S. for depression.

Cypress’ stock gained more than $1.90, or 27 percent, and was trading at over $9 a share in the late morning. Its strategic partner, New York’s Forest Laboratories (NYSE: FRX) was up $1.10, or 4.5 percent, and trading above $25.

Fibromyalgia is a chronic condition characterized by widespread pain and decreased physical function, afflicting as many as six million people in the United States. Cypress decided to test the drug for fibromyalgia because of the way it’s designed to block the reaborption of serotonin and norepinephrine, two pain-and-mood signaling chemicals in the brain.

The FDA’s approval of milnacipran (Savella) is a key validation for a strategic change in direction that Cypress CEO Jay Kranzler made in 2001, when Cypress licensed the drug from a French drug company. Cypress formed a strategic partnership around the drug in 2004 with Forest Laboratories, which contributed cash, clinical-trials and regulatory expertise, and marketing expertise.

Kranzler’s move expanded Cypress’s focus beyond developing drugs for treating rheumatoid arthritis, the firm’s original area of expertise. After acquiring Proprius Pharmaceuticals last year, Cypress said it had broadened its capabilities further to provide personalized medicine testing services to help rheumatologists optimize therapies for treating ailments like rheumatoid arthritis and fibromyalgia.

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San Diego-based Cypress Bioscience and its partner, New York-based Forest Laboratories, said today they got positive results from a final-stage study of 1,025 patients with fibromyalgia. The patients took either milnacipran or a placebo, and a greater proportion of patients on the drug experienced at least a 30 percent reduction in pain from when they entered the study and rated themselves “very much improved” or much improved. The companies have applied for FDA clearance to market this drug based on two previous Phase III trials that reached their goals, but the application has been delayed.

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Cypress Bioscience will have to wait a while longer before it can start marketing its first drug. The San Diego company (NASDAQ: CYPB) and its partner, New York-based Forest Laboratories, said today the FDA wasn’t able to make a final decision by its Oct. 18 deadline on whether to clear milnacipran—already approved outside of the U.S. for depression—for sale as a new drug for fibromyalgia in the United States.

The FDA hasn’t requested any new information from the companies, but did ask the companies to confirm a question it had about some clinical trial data on the treatment. The FDA has been missing some of its deadlines lately, like with Amgen’s romiplostim (Nplate) for a bleeding disorder, so it’s not exactly a shock that the agency stalled this application. The companies said they continue to plan to start selling the drug in the first quarter of 2009.

As we discussed in a profile a couple weeks ago, Cypress sees this as a big opportunity to sell a drug for a pain condition that patient advocates say affects as many as 6 million people in the U.S., with about 90 percent of them being women. Pfizer’s pregabalin (Lyrica) and Eli Lilly’s duloxetine (Cymbalta) are the first drugs approved specifically for this condition. It sounds like the companies remain confident they can answer the FDA’s question about their application, but Cypress will likely have to remain in limbo for at least a few more weeks while the FDA digs through the piles of applications stacking up on its desk.

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Cypress Bioscience is one of those biotech companies that has limped along for more than 20 years, losing loads of money. In the lovely language of chief operating officer Sabrina Johnson, it has gone through “several reincarnations.” The company now expects to find out by the end of this month whether its latest incarnation will enable it live a prosperous life here on Earth.

The San Diego-based company (NASDAQ: CYPB), and its partner, Forest Laboratories, expect to hear from the FDA by the end of this month on whether they have clearance to start selling milnacipran for fibromyalgia. I visited Johnson at Cypress headquarters last week during my tour of San Diego. Wall Street doesn’t seem to think too highly of what’s going on here, with Cypress trading down more than 60 percent from its one-year high.

Cypress started down this path in 2001, when it licensed rights to milnacipran, a drug approved outside the U.S. for depression. Johnson says they decided to test the drug for fibromyalgia because of the way it’s designed to block the re-uptake of serotonin and norepinephrine, two pain-and-mood signaling chemicals in the brain. Cypress was well aware of fibromyalgia’s reputation as a questionable diagnosis and some doctors doubt it is real. Yet advocacy groups insist that as many as 6 million Americans have the disease, with about 90 percent of them women, Johnson says. In theory, this looks like an opportunity to sell a whole lot of the drug.

Two pharma giants, Eli Lilly and Pfizer, evidently agree. Pfizer’s Lyrica, a drug for nerve pain, became the first treatment approved for fibromyalgia in June 2007. Lilly’s depression medicine, Cymbalta, was next, getting FDA approval last June.

“Lilly and Pfizer threw more money at it, so they beat us to the endgame,” Johnson says. “We were just 12 people, little Cypress.” (The company has 25 employees now.)

It took a fair bit of time for Johnson to explain the clinical trial data, but I still felt pretty skeptical about them.

Cypress set up its trials to measure milnacipran’s effect on three main problems associated with fibromyalgia. It had to decrease pain by at least 30 percent; patients need to say they feel much or very much improved overall on a questionnaire, and they need to show improvement in activities of daily living like tying shoes and being able to go to work.

About 20 percent of patients in Cypress’ key clinical trial reached that combined goal, compared with 12 percent to 15 percent on placebo, which was a statistically significant difference, Johnson says. By a different measure that doesn’t score the activities of daily living, the numbers look a little better, with 25 percent on the drug responding. That compares with 13 percent on placebo, she says.

Still, the studies show a high dropout rate of 35 to 40 percent. The most common side effects are nausea in about 20 percent of patients; an increased heart rate of 7-8 beats a minute, and an increase in blood pressure of 2-3 points on both the systolic and diastolic scores.

The competitors don’t have squeaky-clean side-effect profiles, either. Lyrica causes dizziness and sleepiness, blurred vision, and weight gain, according to the FDA. Cymbalta patients reported increased rates of nausea, constipation, and fatigue than those on placebo.

Cypress plans to build its own sales force of about 100 national sales reps who will try to make the case for milnacipran against those big guys. They will target specialists like rheumatologists, pain specialists and physical medicine and rehab docs who get these patients as referrals, Johnson says. That leaves the army of reps from its partner, Forest, to go after the masses of primary care physicians, she says.

One piece to the Cypress strategy that I found interesting is that they aim to build on their relationships with rheumatologists to do more than just pitch a new drug. Cypress plans to offer a test rheumatologists can use to measure how their patients metabolize methotrexate, a cheap drug for rheumatoid arthritis that doctors usually have to give first before they resort to more expensive biotech drugs like Amgen’s Enbrel or Abbott Laboratories’ Humira. “We want to be a resource for physicians,” Johnson says.

I’m not sure physicians will really warm up to a fibromyalgia drug that offers a benefit for something like 8 percent more patients than a placebo. If the FDA says that’s good enough, Cypress will be able to chart its new course. “We’re going to be a commercial organization,” Johnson says. “This is a model we think we can build a sustainable organization with.”

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