Pozen plunges after FDA setback; NxStage climbs after follow-on; BioNumerik nixes IPO plans

By Ronda Fears

Memphis, June 9 - Biotechs overall were a tad weaker Friday, with increased pressure on names with drug approvals pending after Pozen, Inc. was pounded on a setback at the Food and Drug Administration over its migraine medication Trexima.

"There have been so many [FDA] approval nightmares recently you wouldn't think this would have been such a way-lay, but it was," said a sellside trader.

Pozen shares (Nasdaq: POZN) fell $8.59, or a whopping 60.88%, to settle Friday at $5.52. Although traders said volume for the biotech sector was running light Friday, some 25 million shares of Pozen changed hands, versus the three-month running average of 383,114 shares.

But the drop sparked believers in the story to add to positions in the face of the downswing.

"The FDA just wants more information about the safety findings," said a buyside source in Boston.

"This stock should no way have been cut over 60%, but thanks for the cheap shares I say. I backed up the truck on that."

The FDA said it would not approve migraine treatment Trexima, Pozen's lead candidate, without additional safety information, which may require new studies. Pozen and development partner GlaxoSmithKline plc said in a statement that they plan to request a meeting with the FDA as quickly as possible to determine a plan to move forward. They had been planning to launch the drug in the second half of this year.

Glaxo shares (NYSE: GSK) dropped 75 cents on the day, or 1.35%, to $54.65 on low volume of 1.26 million shares versus the norm of 1.31 million shares.

Trexima combines Glaxo's Imitrex, which uses Pozen's RT Technology, with naproxen sodium, a nonsteroidal anti-inflammatory drug. RT Technology allows drugs to quickly dissolve and disperse in the stomach, especially when stomach movement is slowed down, a common occurrence during a migraine.

NxStage adds 11% after deal

Despite trouble getting deals off in the biotech sector, NxStage Medical, Inc. netted $4.6 million from a discounted follow-on offering. It had sparked a sell-off in the stock beforehand, but many who abandoned ship were banging their heads in frustration when the stock found support Friday and gained ground afterward.

The Lawrence, Mass.-based portable dialysis machine concern raised $48.125 million in gross proceeds from a follow-on offering of 5.5 million shares at $8.75 - discounted from Thursday's close of $9.04 - via joint bookrunners Merrill Lynch & Co. and JPMorgan.

NxStage shares (Nasdaq: NXTM) rose 97 cents on the day, or 10.73%, to close at $10.01 and then in after-hours activity added another 65 cents, or 6.49%, to $10.66. It, too, saw heavy activity in the session with 1.83 million shares traded versus the norm of 57,627 shares.

"I am just kicking myself," said one buyside source who said he sold on the pricing news.

"Splat, thump. That's the sound of me jumping out of a window with the $8.75 offering. The thump is after the sucker's dead cat bounce."

A secondary offering of 113,371 NxStage shares by Sprout Group, Atlas Ventures, Federated Investors, Healthcare Investment Partners priced at the same level. The secondary was trimmed from earlier plans to sell 500,000 shares.

Lawrence, Mass.-based NxStage, which makes portable dialysis machines, said it would use proceeds to fund continuing operations, including the expansion of sales and marketing programs and hiring additional personnel, working capital needs, including investment in its portable hemodialysis System One field equipment.

BioNumerik boots IPO plans

Market conditions led BioNumerik Pharmaceuticals, Inc. on Friday to abandon its plans to go public. The San Antonio-based biotech had been trying to get its IPO off since June 2004, hoping at that time to raise $75 million.

More recently, the company had proposed to sell 5 million shares at $14 to $16 each to accomplish that estimate, but market sources said the downturn in the markets made those terms too difficult.

"Oncology is strong right now, well in terms of popularity, but risk aversion is stronger," said a biotech fund manager in Boston.

"Early stage biotechs are finding it pretty hard right now to raise money. Even if they have a late-stage product, like BioNumerik, it's hard. I think they [biotechs] will probably have to look to private capital for a while longer before they will be welcomed in the IPO market."

BioNumerik develops Tavocept as an investigational new drug to prevent or mitigate neuropathy and BNP 1350 as an antitumor chemotherapy drug. The company had earmarked IPO funds to complete Tavocept manufacturing and commercialization, to advance phase 3 clinical trials for BNP 1350, for working capital and for other general corporate purposes.

Millennium gains on filing news

The popularity of cancer-focused biotechs, which players admit has been rocky over the past year, was evident Friday with the reaction to news from Millennium Pharmaceuticals, Inc. that it had applied to expand the label for its multiple myeloma drug Velcade to include mantle cell lymphoma, an aggressive type of non-Hodgkin's lymphoma.

"Shorts are coming off now. This stock wants to run," said a trader. "I'll sit back and enjoy the ride. I don't know yet, but this rally could be bigger than last October."

Millennium Pharma shares (Nasdaq: MLNM) gained 13 cents, or 1.42%, to end Friday at $9.31.

"Looks like Dunsire [chief executive officer Deborah Dunsire] is following her game plan to continue to expand sales into new indications and, thus, reach profitability this year," said a buyside source in Dallas.

"Wall Street will like the fact that the company becomes profitable on organic growth and has some future potential in terms of the pipeline. I am continuing to add to my position at these levels. The stock held up well over the last week's down market, on large volume, so for me that speaks very well that the stock is again generating interested buyers based on very positive future earnings.

"I think Millennium's current strategy is going to pay off very well and re-establish credibility with The Street, which had been lost under previous management. Everything looks like it is lining up very well."

Player eyes market for support

Although biotechs from a business standpoint do not follow the more general market sways, because of hedge funds getting more involved there are factors that will swing the sector that in times past have not had to be a concern. These days, biotech players are looking beyond their horizons for signals of when to buy or sell.

"We'll see if the upturn in the market sticks. Most of the sentiment indicators point to an intermediate-term bottom of some kind. Although, I expect this intermediate-term upturn could be on the short side of about six to eight weeks," the Dallas buysider said early Friday.

After the market closed, he noted that even the modest gains seen early Friday did not cement for a positive close. The Dow Jones Industrial Average ended off 0.43% and the Nasdaq closed down 0.48%. The Nasdaq Biotechnology Index lost 0.8% on the day.

"Watch oil and gold closely over the coming weeks. It seems as though everyone feels that oil has to come down, and that does not make the sentiment and technical side of me feel very good," the fund managers said. "Oil has been consolidating and could break either up or down from a technical standpoint. If it breaks up I suspect gold will be right there with it. If oil were to break down, then of course that would be great for the economy and the market."

The bottom line, he said, for biotech investing has become a more ethereal point.

"There are a lot more balls in the air these days when it comes to picking stocks, biotech or otherwise," he said. "You have to have lots of screens running, if you know what I mean."

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