ViroPharma spikes ahead of 2Q; Genomic off on lower outlook; Genitope falls 12% on new data

By Ronda Fears

Memphis, Aug. 1 - The next wave of earnings this week moved many biotech stocks, but the tide was ebbing with a decided negative move in the major biotech indexes. That said, ViroPharma, Inc. was sharply higher Tuesday ahead of its second-quarter report slated before Wednesday's opening bell.

"I'm getting the sense that targets are either going to be met or exceeded, or not end up being nearly as critical a catalyst in driving the share price upwards as many of us have been agitating about," said a sellside equity trader. "ViroPharma has been undervalued for months now. We shouldn't be so surprised when the rest of the world finally figures it out. There are many great reasons to buy and hold this stock."

ViroPharma markets Vancocin capsules for the treatment of antibiotic-associated pseudomembranous colitis, which it has recently been defending against generic competition, but also is working on a hepatitis C vaccine as well as several other antibiotics.

ViroPharma shares (Nasdaq: VPHM) on Tuesday added 84 cents, or 10.8%, to go home at $8.62.

It was not all short covering, either, the trader said. "For the last 30 minutes of trading today, I think it would have reached $9 if there was a lot of short covering. On the other end of the stick, it would settle back to the $8.40 or $8.50 range if there was profit taking."

A buyside source, though, noted there also was fairly decent activity in ViroPharma options with seemingly two strategies at odds - buying November calls as well as leverage with puts - but both suggesting that the sentiment on ViroPharma is positive.

"With the PJ [Piper Jaffray, outperform, with $12 price target] upgrade this morning, I anticipated ViroPharma would be in the $8.50 territory today and on earnings day [Aug. 2], it would be in the $9 to $11 range and then settle back to the $9 to $10 territory," the buysider commented. "With the strong volume and price action today, and if tomorrow's earnings report and forward outlook numbers are good, I could be in for a pleasant surprise."

Some 3.8 million ViroPharma shares changed hands Tuesday versus the norm of 1.96 million, in a band of $8.03 to $8.75.

But many other biotechs were decidedly lower ahead of earnings in the coming days, including Ariad Pharmaceuticals, Inc. (Nasdaq: ARIA) with a 25-cent loss on the day, or 6%, to settle at $3.92. The company is scheduled to report second-quarter results on Aug. 8.

Genomic Health falls back 5%

While Genomic Health, Inc. posted a narrower net loss for the second quarter and provided a better outlook on 2006 as a whole, the stock dropped 5% on concern about future approvals at the Food and Drug Administration.

The company posted a second-quarter net loss of $4.9 million, or 20 cents a share, compared with a net loss of $8.1 million, or 43 cents a share, in the second quarter of 2005 while revenue grew sevenfold to $8.4 million from $1.2 million.

Redwood City, Calif.-based Genomic Health provides genomic-based clinical laboratory services for cancer testing. In 2004, it launched its first test service, Oncotype DX, to predict the likelihood of breast cancer recurrence and chemotherapy benefit in early-stage breast cancer patients. The company said revenues for Oncotype DX climbed to $7.8 million in the second quarter from $1.1 million a year earlier and $4.2 million in the first quarter.

For 2006, the company projects revenue of $24 million to $26 million - up from its previous forecast of $14 million to $18 million - and a net loss of $31 million to $35 million - improved from its previous estimate of a loss of $37 million to $43 million.

"We are seeing large revenue increases and improved guidance. The product [Oncotype DX] is getting large acceptance. It's very good in my opinion for the future quarters of this company," said a buyside source in Boston.

"The only thing holding this stock back is the FDA decision, but it seems the issue will be resolved or settled by fourth quarter. I expect to see some good remarks from the sellside investment community."

Genomic Health is working on clinical trials to apply the RT-PCR technology used in the Oncotype DX breast cancer test service for predicting response to different therapies as well as recurrence in other cancers, such as colon cancer.

Genitope data fails to impress

Genitope Corp. fell hard Tuesday after releasing data on its MyVax studies on non-Hodgkin's lymphoma that was interpreted to show that it is no better than the Rituxan treatment already on the market from Genentech, Inc.

"It seems no one was impressed with the MyVax Kaplan-Meier curves," a sellside market source said. "The broad interpretation is that it suggests only a modest benefit is being observed than seen with Rituxan."

Genitope shares (Nasdaq: GTOP) fell 36 cents on the day, or 12.33%, to settle at $2.56.

In a Securities and Exchange Commission filing Tuesday, Genitope released the Kaplan-Meier curve reflecting the probability of progression-free survival generated from the blinded data from patients who received MyVax in its phase 3 clinical trial for non-Hodgkin's lymphoma. The trials have been hampered by setbacks from recommendations for more data in order to proceed; last week the stock fell to a new 52-week, and all-time, low of $2.82.

"I can't figure out why anyone would say that this curve is positive," the sellsider continued. "All the baseline Kaplan Meier curves for this indication are very similar to this one, which would indicate that this drug is not improving anything. If there is any lift for the stock at all, then I would take some money off the table."

DepoMed view seems dim

Ahead of its earnings a week from Tuesday, DepoMed, Inc. shares took a 7% hit.

A buyside source said the recent amendment in DepoMed's marketing pact with closely-held Esprit Pharma, Inc. covering the sale of its antibiotic ProQuin XR, pushing back a due date for $10 million in licensing fee payments to December and meanwhile requiring DepoMed to pick up the tab to market the drug will be a big overhang on the story.

"There was pretty hefty selling today," he said, "but I am hanging on for now."

DepoMed shares (Nasdaq: DEPO) lost 32 cents on the day, or 6.96%, to close at $4.28.

"What I hope to hear on the 7th [second-quarter conference call] is, number one, them acknowledging they have had a problem selling Proquin. Closing your eyes won't make that elephant go away," the buysider said.

"I would like for them to explain exactly what the problem is and show us they grasp it, tell us all they have some kind of plan to get back on track. More importantly, maybe, I want them to tell us how they will avoid having the same problem with Glumetza [type 2 diabetes drug] by giving tangible evidence that their plan for righting Proquin is working."

Icon loses 1.5% after secondary

A secondary offering of 1 million Icon plc American Depositary Shares - priced at $63.50 each versus Monday's close of $65.84 - weighed on the stock heavily but there was considerable buying on the weakness according to one player.

"This stock is a dark horse, in my opinion. There's not a lot of coverage but improving earnings," the buysider said. "This may begin to pop if the overall market turns around."

Icon shares in the United States (Nasdaq: ICLR) dropped $1.01, or 1.53%, to $64.83 on the secondary pricing news, with 288,625 shares traded versus the norm of 83,037.

Dublin, Ireland-based Icon is a contract research organization providing clinical research and development services to the pharmaceutical, biotechnology and medical device industries.

Last week the company reported that second-quarter net income grew to $9.3 million, or 65 cents per share, from $5.9 million, or 42 cents per share, a year before while revenue after subcontractor costs rose 25% to $107.4 million from $86 million.

Selling shareholders in the secondary offering were Ronan Lambe, one of Icon's co-founders and board member, and Poplar Ltd., the sole beneficial owner of which is John Climax, Icon's other co-founder and chairman.

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