Alnylam gains as bird flu names slip; AVI pushes vaccine names lower; Novacea ends flat on debut

By Ronda Fears

Memphis, May 10 - Novacea, Inc.'s debut shares settled the day unchanged after seesawing throughout the session on the heels of pricing far below range. Amid mixed signals, as Northstar Neuroscience, Inc. upsized its initial public offering at an above-range level last week, two more IPOs from Biomimetic Therapeutics Inc. and Quatrx Pharmaceuticals Co. are on deck to price before the week's end.

"It's always case-by-case with the biotechs but I think the trend certainly is bearish over bullish right now, even with the Northstar deal," said a fund manager who focuses on IPOs.

Last Thursday, Northstar priced its IPO of 7.1 million shares, above the originally planned 6 million, at $15 apiece, above the price range of $12 to $14. Then, after Tuesday's close, Novacea priced its IPO of 6.25 million shares at $6.50, reduced from the original price range of $11 to $13 a share, which trimmed proceeds to roughly $40.6 million from original plans to raise up to $75 million.

Novacea shares (Nasdaq: NOVC) opened pat with the $6.50 pricing level and traded in a band of $6.25 to $6.75 before retreating back to $6.50 where they closed, with some 1.25 million shares changing hands. The stock was seen higher in after-hours trade, however, moving up by 22 cents at 4:28 p.m. ET, to $6.72.

"We really thought Novacea would do better, given it is involved in cancer research, but the market is just not very inviting right now," the IPO fund manager said.

Northstar is a medical device maker whose technology includes a brain implant for stroke victims. Northstar shares (Nasdaq: NSTR) slipped Wednesday by 5 cents, or 0.3%, to $16.45 but had been on an upward track since pricing last week.

Meanwhile, the buysider said he was not too excited about the Biomimetic and Quatrx deals on deck. Both were expected to price Wednesday or Thursday, he said.

"The Quatrx deal has been touch-and-go for weeks," the fund manager said. "We are hearing that both deals could get pushed tonight [Wednesday] or tomorrow [Thursday]. I think it will be a push, too."

Biomimetic aims to sell 4.5 million shares proposed at $11 to $13 each for $54 million in gross proceeds at the middle of price talk. Franklin, Tenn.-based Biomimetic concentrates on treatments for the repair and regeneration of musculoskeletal tissues in periodontal bone defects, orthopedic applications and sports injuries. It has licensed patents from ZymoGenetics, Inc., an exclusive manufacturing agreement with Chiron Corp. and has partnered with Luitpold Pharmaceuticals, Inc. for marketing and distribution of GEM 21S - a treatment of periodontal bone defects and gum tissue recession.

Pre-IPO, the biggest Biomimetic investors are Burrill Biotechnology Capital Fund, LP with 21.7%, Novo AS with 15.6% and Holden Capital, LLC with 13.6%.

Quatrx's IPO consists of 6 million shares proposed at $11 to $13 each with proceeds estimated at $75.4 million at the midpoint of guidance including the full greenshoe. The Ann Arbor, Mich.-based biotech focuses on compounds in the endocrine, metabolic and cardiovascular therapeutic areas.

AVI pressures vaccine names

In secondary action, players were still braced for declines as the Federal Reserve move to raise the federal funds target rate by a quarter point to 5% while expected pressured the broader stock markets. Flu and other vaccine names were in the spotlight following the ABC movie and a string of ill-boding news items.

AVI BioPharma, Inc. set the stage for bird flu names and vaccine makers to sink after releasing mixed clinical results for its hepatitis C drug candidate, AVI-4065.

The fictional made-for-TV movie "Fatal Contact: Bird Flu in America" that aired on ABC Tuesday night prompted criticism and a clarification from government officials about what to expect should a pandemic arrive in the United States, but the frantic purchase of flu vaccine stocks did not materialize as had been anticipated.

In fact, most of the group of flu vaccine names were lower, along with other biodefense biotechs and vaccine makers as a whole.

AVI dropped Wednesday after the Portland, Ore., biotech reported the initial results of the second phase of its clinical trial for AVI-4065 Neugene antisense compound to treat hepatitis C patients showed that hepatitis C virus concentrations in the blood, known as viral loads fell only slightly. The company stressed that the data was preliminary and that formal results would be out by the end of the year but the stock took a huge dive.

AVI Biopharma shares (Nasdaq: AVII) fell $2.36, or 32.57%, to $4.90.

"OUCH, in all caps," said one trader in the stock. "It was not a fun day, but I am staying long for the long term. AVI is a great company with a great future, just not yet. I've traded it successfully and I know. Wait."

VaxGen compounds blow

Making matters worse, VaxGen, Inc. took a huge dive as well on news that its anthrax vaccine hit a delay on demands for further testing related to government orders.

VaxGen announced Wednesday that the U.S. Department of Health and Human Services has confirmed its commitment to purchase 75 million doses of the company's recombinant anthrax vaccine candidate for $877.5 million, but issued a unilateral modification to the contract imposing additional requirements for clinical and non-clinical studies. The studies must be completed prior to the initiation of vaccine deliveries to the Strategic National Stockpile, but also extends deadlines.

The company estimates that meeting the new requirements will delay the initiation of deliveries to the stockpile to the end of 2007 at best and more likely into 2008. Prior to the modification, VaxGen had intended to initiate deliveries by the end of this year or early 2007. The company will not be paid for the product until it is delivered to the stockpile, but VaxGen said it is now pursuing financial compensation for the government-directed changes.

VaxGen shares (Pink Sheets: VXGN) fell $2.96 on the day, or 37.23%, to $4.99.

Vical hurt by hedgies' nerves

Avian flu names were impacted by the news from the vaccine makers, as well, after seeing little reaction to the ABC made-for-television movie portraying a potential bird flu scare in America that aired Tuesday night.

Vical, Inc., which has been a favorite pick to date among the bird flu flock, took a hit Wednesday but traders said the story is still no longer a short play. Last week the stock shot up more than 30% amid heavy short covering and while there has been sharp retracing this week, traders said the trend is still upward.

"Hedge funds are nervous [with regard to Vical] so we are going to see some weird activity in this stock, but when the dust settles it will be a winner," said a sellside trader. "Here's my take: When Vical breaks through $7.11 the fall will quicken, and after a pause at $7 it will hit the $6s. The movie was good for a $7.40 trade and then the VaxGen news hit. When people figure out that the VaxGen bad news has nothing to do with Vical, watch Vical come back up. Actually this VaxGen news will help Vical, not hurt."

Vical shares (Nasdaq: VICL) dropped 26 cents on Wednesday, or 3.6%, to $6.96.

"I think that $8 is coming soon, then a big spike to $10-plus," the trader said. "This stock has maintained its 30% gain from seven days ago, and on light volume the past three days. That's very bullish."

San Diego-based Vical said last week that its flu vaccine protects mice and ferrets against the feared H5N1, plus could be a potential universal flu vaccine because it targets parts of the virus that all flu strains have.

Novavax, Sinovac plunge big

A couple of other notable decliners among bird flu names were Novavax, Inc., and Sinovac Biotech Ltd., the trader said.

Sinovac's story is difficult to call, he said, because being headquartered in Beijing has both pros and cons. While being located in the Far East offers benefits to being closer to some of the bird flu outbreaks, he said, it can be perceived as having some regulatory drawbacks as well.

Sinovac offers Healive, a vaccine for hepatitis A, Bilive, a combined vaccine for hepatitis A and B, and Anflu, a split flu vaccine. The company is also developing SARS vaccine as well as has a co-development agreement with the China Center of Disease Control and Prevention for the development of avian flu-pandemic influenza vaccine.

Sinovac shares (Amex: SVA) on Wednesday dropped 24 cents, or 5.53%, to $4.10.

Novavax shares (Nasdaq: NVAX) fell 61 cents, or 10.37%, to $5.27.

The trader said the sharp pullback in Novavax also is largely based on its precarious reliance on government funding.

"On March 31, when the hype on bird flu hit Wall Street in a big way, Novavax traded to $8 or thereabouts. Now it's at $5.30," the trader said.

"One thing I do not like is the high emphasis on government funding written into the Novavax story. This may be the sole reason for the sell-off, even though they still may get a piece later down the road. Expectations have been met with disappointment. Of course, it may go up from here as Mr. Market has a mood change, but that's hard to call."

Anadys Pharma slides 3%

Another vaccine name, Anadys Pharmaceuticals, Inc. lost ground Wednesday, on the heels of its first-quarter results. With pleasing quarterly results, traders blamed Anadys' decline on the bearish tone of the overall market and said many players were buying into the slump.

Anadys shares (Nasdaq: ANDS) traded up to $12.74 before falling back to settle the day off by 35 cents, or 2.79%, at $12.19. But volume was low, traders noted, with just 184,716 shares traded versus the norm of 273,081.

"I love this stock but all high beta stocks like Anadys will sell-off on a Nasdaq correction and the market is looking over-bought," said a trader in the stock. "A sell-off back to the 2,000 range [in the Nasdaq] means Anadys could trade to single digits." The Nasdaq on Wednesday lost 0.75% to 2,320.74.

Otherwise, with "decent" first-quarter results and the company's pipeline, the trader said Anadys is a good holding.

After Tuesday's close, San Diego-based Anadys posted a first-quarter net loss of $5.8 million, or 20 cents a share, compared with a loss of $8.4 million, o r38 cents a share, a year before, as revenues rose to $1.54 million from $563,000.

"It is a very cheap company with some excellent drugs in the pipeline. They just need to speed up testing to move them along," the trader said.

"At this price the pipeline is very cheap. They don't need cash in the short term. They have plenty of money to develop their pre-clinical pipeline to a phase 2 proof of concept. For my part, I am a buyer on the weakness."

JMP Securities analyst Adam Cutler said in a report Wednesday that he expects a partnership to be announced for ANA380 sometime in the next few months, followed by a phase 3 trial initiation in the second half of the year. Moreover, Cutler said, "We continue to view Anadys as one of the most exciting small cap investment opportunities in biotechnology."

Vivus vaulted higher by 31%

On drug trial news as well as a $12 million direct stock placement with just a slight discount to the current market, Vivus, Inc. shares surged Wednesday by more than 31% amid eye-popping volume.

Vivus reported Wednesday that results from a phase 2 trial for its weight loss drug Qnexa showed that more than half of the patients lost 10% or more total body weight after 24 weeks. Mountain View, Calif.-based Vivus is focused on treatments for obesity and sexual dysfunction.

Also, the company reported that it is gearing up to wrap a $12 million direct placement 3,669,725 shares at $3.27 apiece - discounted from Tuesday's close of $3.28 - to a group of investors led by the high profile biotech fund OrbiMed Advisors, LLC.

Proceeds from the placement will be used for clinical trials, including studies required before the initiation of the phase 3 clinical trial of Qnexa, Vivus said, with the remainder for general corporate purposes.

Vivus shares (Nasdaq: VVUS) climbed $1.02 on the day, or 31.1%, to settle at $4.30 after trading in a band of $3.46 to $5 intraday. More than 7.5 million shares changed hands, compared with the norm of 119,098.

Emisphere rockets up 18%

In another deal-related move, Emisphere Technologies, Inc. shares shot up 18% after announcing it has wrapped up a direct stock placement from which it will pocket $33 million.

Tarrytown, N.Y.-based Emisphere, which concentrates on developing oral delivery of drugs that would otherwise only be delivered through injection, said it has sealed agreements with investors for a direct placement of 4 million shares at $8.26 each, which compares to a close Tuesday of $8.24.

Emisphere shares (Nasdaq: EMIS) added $1.48, or 17.96%, to settle at $9.72 on Wednesday.

Proceeds from the deal, the company said, will be used for the development of lead clinical programs, as well as for general corporate purposes. The company has products in various stages of development to treat osteoporosis, human growth hormone disorders and diabetes.

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