ImClone off 4%, Repligen soars; Viragen slides, Napo debuts up; Pozen gains; Novavax up 12.5%

By Ronda Fears

Memphis, July 31 - ImClone Systems Inc. took a hit Monday on news from late Friday that it failed to win a motion to dismiss the patent dispute with the Massachusetts Institute of Technology and Repligen Corp. over the colon cancer drug Erbitux - ImClone's sole source of revenues.

In a shortened trading session for ImClone shares, which were halted from 9:35 a.m. ET to 11:50 a.m. ET, the stock reeled on the news, but traders were expecting a late-day rally on short covering after the news was fully digested. Moreover, speculation of a settlement gained steam throughout the session as well, lending a lift off the lows to ImClone shares.

"It did pick up in the last hour of trade, but not by as much as I thought it would," observed a sellside trader after the closing bell.

ImClone shares (Nasdaq: IMCL) traded as low as $31.05 but settled the day off by $1.42, or 4.19%, at $32.50.

Trading in Repligen shares also was halted on the news, and then rocketed but came off the day's high of $3.50. Repligen shares (Nasdaq: RGEN) closed the session higher by 60 cents, or 25%, at $3.

"It is not that big of a deal," commented the trader earlier in the day. "Imclone management goofed by requesting the halt in trading. This merely served to underscore an otherwise not very important event and blew its importance out of proportion to reality. This was only a minor skirmish lost with the real battle yet to come in the actual trial on the merits of the matter."

ImClone has previously reported that it produced some $1 billion worth of Erbitux prior to the expiration of the patent in 2004 and that partner Bristol-Myers Squibb Co. has paid $900 million in upfront and milestone payments plus a 39% royalty on the sales of Erbitux in the United States.

Repligen asserts the protein production process used to produce Erbitux was created by its predecessor under a contract for the National Cancer Institute, which later transferred the line to ImClone for purposes of research and development. The case was first filed in May 2004. ImClone markets Erbitux, which was approved in February 2004, with Bristol-Myers Squibb.

ImClone and Repligen said the case will now proceed to trial, but a specific date has not been determined and players are widely anticipating a settlement.

"ImClone will settle. Why? They just lost $80 million in market cap. For a $50 million pay-out they could make the issue go away. If they lose, they stand to lose another $80 million easy in market cap. Settle and the stock market will give them the money for free. Meaning, if they announce a $50 million settlement, ImClone stock rallies and gives them the $50 million back in market cap," the trader continued.

"The over reaction is more on the ImClone side, so one should buy ImClone and sell Repligen, if you in fact believe this price movement is way over done."

Discovery Labs gains, retreats

It was a wash shortly after the closing bell for Discovery Laboratories, Inc., another sellside trader said, noting that the stock was higher during the regular session on hopes of buyout news and then snapped back after the close when no news was forthcoming.

"The rumors are flying on this one," the trader said. "It was Merger Monday, prime for a buyout press release, but nothing came and so we saw a rush to take profits on the run-up."

Discovery Labs shares (Nasdaq: DSCO) gained 7 cents on the day, or 4.07%, to $1.79 and in after-hours activity gave back all of that to $1.72, where it closed Friday after announcing a wider second-quarter net loss but one that was in line with analysts' expectations.

The biotech has been battered since failing to get approval for its respiratory antibiotic Surfaxin in premature infants because of manufacturing issues that surfaced at the Food and Drug Administration. After losing in the neighborhood of 80% of its market cap, the company hired Jefferies & Co. to "explore strategic alternatives," the Wall Street catchphrase for a sale. Meanwhile, the company is scheduled to meet with the FDA in fourth quarter about Surfaxin.

"Regarding financing, all of the doom and gloom assumes no partner will be found," the trader continued. "They have been diligently looking for partnership opportunities since mid-April, nearly four months. It is only a matter of days to weeks before a partnership is announced, in my opinion, but every day that goes by fuels the skepticism.

"Surfaxin will be approved, I think. It does not require more clinical studies and currently holds two approvable letters. All of the analysts feel Surfaxin will be approved. There a several multi-million/billion additional indications that could be potentially afforded to Surfaxin. Once approved it could potentially generate $350 million it its first full year on the market. So, you'd think someone would be loading up on this."

Viragen loses 16% on financing

Among several big declines in the biotech space Monday, Viragen, Inc. shares fell more than 16% on news the company plans to sell 67 million units, consisting of one share plus one a five-year warrant to purchase one share.

Viragen shares (Amex: VRA) lost 5 cents on the day, or 16.13%, to close Monday at 26 cents.

Plantation, Fla.-based Viragen, with operations in the United States, Scotland and Sweden, is focused on therapeutic proteins for the treatment of cancers and viral diseases. Its product portfolio includes Multiferon for cancer and selected infectious diseases, VG101 for malignant melanoma tumors and VG102 for solid tumors.

Viragen also is pioneering the development of the OVA System for avian transgenics with Roslin Institute, the creators of Dolly the Sheep - the first mammal to be cloned from an adult cell in 1996, which lived for six years. Viragen said the OVA System is a revolutionary manufacturing platform for the large-scale, efficient and economical production of human therapeutic proteins and antibodies by expressing these products in the egg whites of transgenic hens.

Viragen noted that it has received deficiency letters from Amex advising its common stock, which trades under the ticker VRA, has not meet continued listing standards regarding minimum stockholders' equity and net losses requirements since June 30, 2005. The company said it has been given a conditional extension until March 20, 2007 to regain compliance.

Napo gains 12% in London

South San Francisco, Calif.-based Napo Pharmaceuticals, Inc., which went public in London last week with a stock float at 83p a share, raising proceeds of £12 million, gained in trade there on Monday when the stock debuted.

Napo shares (London: NAPL) added 10p to close Monday at 93p - the day's high.

Napo's lead product candidate, crofelemer, is in various stages of clinical trials for four indications - AIDS-related diarrhea, irritable bowel syndrome, pediatric diarrhea, and acute infectious diarrhea or traveler's diarrhea and cholera.

The company has licensed crofelemer for diarrhea-predominant irritable bowel syndrome to Trine Pharmaceuticals Inc. AsiaPharm Group Ltd. and Glenmark Pharmaceuticals Ltd. have licensed crofelemer for development and commercialization for the Chinese market, India and countries outside the United States, Europe, China and Japan to treat AIDS-related diarrhea, acute infectious diarrhea and pediatric diarrhea. Glenmark is also providing scale-up manufacturing of crofelemer to meet FDA requirements.

Pozen up 27% on Trexima news

There were some big gainers Monday, as well, including Pozen, Inc. on word that it will submit a full response to the FDA approvable letter on its migraine drug Trexima in fourth quarter - signaling to onlookers that safety concerns are well in hand.

Pozen shares (Nasdaq: POZN) added $1.63 on the day, or 26.85%, to end at $7.70.

The FDA said last month said it would not approve the drug Trexima until new safety information was available, pounding Pozen shares by some 50%.

After Pozen and partner GlaxoSmithKline plc met with the agency, Pozen said it plans to submit a full response that will include additional safety information. The FDA will have up to six months to review the additional information, thus some analysts say Trexima could launch in the last half of 2007.

"According to 'BusinessWeek' articles a few months ago, Migraine medication is a $1 billion-a-year-plus business. Upon approval, Pozen gets $20 million to add to its current substantial cash holdings. Pozen will receive royalties on all sales, which royalties could be as high as 17% (e.g, $170 million on $1 billion)," said a buyside source in Florida.

"Pozen also has an arthritis drug [Lornoxicam] in clinical trials, which according to reports to date, is a lot safer than any of its rival painkillers. So, even more potential occurring behind the scenes than current issue at hand."

Novavax up 3% more after bell

Another gainer, Novavax, Inc., shot up more than 12.5% on its announcement of success for its vaccine to protect against new mutation of avian influenza, and the stock extended the gain by nearly 3% in after-hours trade.

"We believe this is the first vaccine to be made that targets the H5N1 clade 2 virus isolated from people in Indonesia who have been infected with this mutated version of avian influenza," said Novavax chief executive Rahul Singhvi in a news release. "This is a very significant milestone for Novavax and our proprietary virus-like particle vaccine technology. This demonstrates how rapidly we can respond by making a vaccine to protect against emerging pathogens worldwide, compared to older egg-based manufacturing methods."

Novavax shares (Nasdaq: NVAX) climbed 43 cents on the day, or 12.5%, to close at $3.87 and after the bell were seen higher by another 10 cents, or 2.58%, at $3.97.

The company said preclinical testing of the vaccine has already started and is likely to take several months but once those results are analyzed it will move it into human clinical trials.

One player said he is glad of the Novavax gain but has more money riding on flu vaccine rival Vical, Inc. Both biotech stocks have seesawed sharply over the past week, since GlaxoSmithKline plc announced last week that its H5N1 vaccine showed 80% effectiveness in interim results from a 400-patient trial in Belgium.

"The headline read: Vical's DNA vaccine provides complete protection against avian influenza and demonstrates cross-protection against multiple human flu strains in animal studies," the buysider in Boston said. "That is more exciting to me."

Vical shares (Nasdaq: VICL) ended Monday off by a penny at $4.75.

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