Hollis-Eden loses in advance of first-quarter report; Tercica dives 22% after close; Curis rises 17%

By Ronda Fears

Memphis, May 9 - Hollis-Eden Pharmaceuticals, Inc. took a sharp dive ahead of its earnings, which traders said mirrored the overall mood of biotech players regarding first-quarter results.

"With few exceptions, the earnings season has been a real drag on the biotech sector," said a biotech stock trader at one of the bulge bracket firms. "There is the overall correction in the broader market but we [biotech players] have had a few upsets that have spooked the sector, too. I think the tide will turn eventually but it's hard to say when."

As for Hollis-Eden specifically, while the drop was severe, buysiders also noted that volume in the stock was not extraordinarily stout.

"Traders are working the board while they wait for the Federal Reserve to make a decision or for Hollis-Eden management to announce a light at [the] end of [the] tunnel," said a buyside source in Florida. "That's my take. Let's see how the call [on first-quarter results] goes tomorrow."

He said he was holding his position until further light on the company's future emerges. "This company has other products besides those which aid in the event of a radioactive dispersal."

San Diego-based Hollis-Eden focuses on radiation and chemotherapy-induced immune suppression and immune dysregulation caused by infectious diseases such as HIV, malaria and tuberculosis. In addition, Hollis-Eden is developing a non-immune regulating hormone drug candidate for providing protection against DNA mutations from radiation exposure and chemotherapy treatment.

Hollis-Eden shares (Nasdaq: HEPH) fell 28 cents, or 5.41%, to $4.90 with 237,648 shares traded versus the norm of 159,585 shares.

Tercica falls 22% after close

Another earnings-related mover Tuesday was Tercica, Inc. The stock saw a nice gain ahead of its first-quarter results after the close, but the numbers were a big disappointment and the stock fell hard in after-hours activity.

"The Tercica results were far below analysts' forecasts, hinting at a very poor launch" for its newly approved drug Increlex - used to treat children with growth hormone deficiency, said a buysider in Boston.

Tercica shares (Nasdaq: TRCA) closed Tuesday higher by 24 cents, or 3.88%, at $6.42. At 4:27 p.m. ET, after-hours activity had taken the stock lower by $1.41, or 21.96%, to $5.01.

Tercica posted a first-quarter net loss of $14.3 million, or 40 cents a share, compared with a net loss of $9.1 million, or 32 cents a share, a year earlier, with revenue of $85,000, reflecting the initial quarter of sales of Increlex. There were no revenues in the year-ago quarter. Cash, cash equivalents and short-term investments at March 31 were $79.2 million.

Also Tuesday, Tercica affirmed previously issued guidance for 2006 cash burn to be between $63 million and $69 million and said it would provide annual revenue guidance upon assessment of two quarters of product sales for Increlex.

Curis climb sparks selling

Curis Inc. jumped 17% on Tuesday, in the wake of narrowed first-quarter loss and the extension of a deal with biotech giant Genentech. But there were many players selling into the rally, one buysider noted, because a trial segment in the Genentech venture has been delayed.

For the quarter, Curis reported a net loss of $4.1 million, or 8 cents a share, compared with a net loss of $5.4 million, or 11 cents a share, for the same quarter last year. Revenue rose to $2 million, as compared with negative net revenue of $813,000 last year due to payments made for its research collaboration with Genentech.

Curis shares (Nasdaq: CRIS) added 28 cents on the day, or 16.67%, to $1.96.

Also Tuesday, Curis said that Genentech will extend its funding of their collaborative cancer research program through December, with an option to further extend research until June 11, 2007. The two have done extensive preclinical work on orally bio-available small molecule Hedgehog antagonists and continue to conduct studies to support possible future clinical testing of these molecules. Genentech is currently conducting preclinical studies that may support an Investigational New Drug application.

No time frame was provided for a drug filing, but Curis said final data from three trial segments is planned to be analyzed in late 2006 versus original anticipations that the data would be available in June.

Ariad Pharma shares slip 2%

Ariad Pharmaceuticals, Inc. posted first-quarter results roughly in line with expectations, so observers said the focus lies on clinical data expected in June and advancements in the development program expected in late 2006, as well as the final outcome from the patent infringement case against Eli Lilly & Co.

With no big surprises in the results, players in the name are now focused on data for AP573 and the Lilly case. Last week, a jury ruled in favor of Ariad in its patent-infringement lawsuit targeting an Eli Lilly osteoporosis drug and a separate blood infection medication. The jury awarded Ariad and three co-plaintiffs about $65.2 million, including a 2.3% royalty on future U.S. sales of Lilly's drugs Evista and Xigris until the patent expires in 2019. Lilly has contested the verdict.

"I was surprised that Burger [Ariad chief executive Harvey Berger] didn't expand on the importance of a jury win verdict. Lilly has no grounds for a retrial, so I'm sure there will be a settlement soon," said a buyside analyst. "They both have to keep face now. But that is all Ariad ever wanted, was the 'rent' due for the intellectual property used. Other companies will follow along as soon as they realize it's cheaper and faster than a trial."

Ariad shares (Nasdaq: ARIA) lost 11 cents on the day, or 1.71%, to $6.09.

Ariad's first-quarter net loss widened to $15.4 million, or 25 cents a share, from a loss of $12.3 million, or 23 cents a share, a year before, with revenues sliding to $229,000 from $304,000.

"Ariad is in the refueling stage," said a buyside source in Florida. "When the rocket ship is fully refueled and launches, it will be big."

Sellside analysts tend to agree that there is upside in the stock.

"Although not blue skies yet, we believe that the clouds are clearing away from these two stock drivers," said JMP Securities analyst Charles Duncan in a report Tuesday.

Qiagen slips on bond deal

Qiagen NV priced its overnight convertible note deal, upsizing the 20-year convertible senior notes to $270 million from $220 million, with a coupon of 3.25% and an initial conversion premium of 30.89% - at the aggressive end of guidance for a 3.125% to 3.625% coupon, up 30% to 35%.

The stock was weak on the convertible deal, with volume rising to 602,771 shares Tuesday versus the norm of 274,616 shares. Qiagen shares (Nasdaq:QGEN) dropped 19 cents on the day, or 1.24%, to $15.09.

Qiagen will seek to list the convertibles in Luxembourg. Qiagen is a Venlo, Netherlands-based maker of research equipment and instruments for the biotech sector. It said the proceeds will help to "optimize the structure of its balance sheet," which includes repaying existing debt, financing future acquisitions and general purposes.

Last November, Qiagen launched two novel test kits for the detection of influenza and the avian flu virus H5N1 for use in humans and animals, and earlier this week posted better-than-expected first-quarter results.

Qiagen said late Monday first-quarter net earnings rose to $17.6 million, or 12 cents per diluted share, from $13.9 million, or 9 cents per share, while sales rose 14% to $108.7 million from $95 million. In February, Qiagen had said it expected first-quarter sales to be between $101 million and $104 million.

Qiagen stock price a concern

The Netherlands-based maker of genetic test kits also this week raised its forecast for 2006, citing growth from acquisitions, but analysts are concerned about a steep stock price.

Qiagen said it now expects 2006 sales to be $453 million to $462 million, up from a previous forecast of $439 million to $451 million, thanks to its acquisition this month of U.S.-based Gentra Systems, Inc., which purifies nucleic acid from blood samples. The acquisition is expected to add at least $6 million in sales in the second half of 2006.

Merrill Lynch analyst Erica Whittaker said in a report Tuesday that despite the strong results the firm was keeping a sell recommendation on the stock, based on valuation. The analyst said Qiagen is trading at a significant premium to its peers.

Whittaker said the Merrill valuation of about €7.60 per share suggests significant downside risk to the current share price. In Europe, Qiagen shares (Xetra: QIA) dropped €0.24, or 1.98%, to close at €11.89.

Abbott launches jumbo bonds

Abbott Laboratories (A1/AA/AA-) launched a three-part $4 billion bond deal Tuesday via joint bookrunners ABN Amro Securities, Morgan Stanley, Banc of America Securities LLC and JPMorgan Securities.

The three-year tranche, for $500 million, was talked to price at 0.48 points over Treasuries.

The five-year tranche, for $1.5 billion, was talked at 0.6 points over Treasuries.

The 10-year tranche, for $2 billion, was talked 0.76 points over Treasuries.

Abbott Park, Ill.-based Abbott Labs plans to use proceeds to repay commercial paper debt incurred to make a $900 million loan to Boston Scientific Corp. and to make an equity investment of $1.4 billion in Boston Scientific, plus help fund its $4.1 billion acquisition of Guidant Corp.'s vascular intervention and endovascular solutions businesses.

The notes were expected to price Tuesday.

Abbott Labs shares (NYSE:ABT) dropped 22 cents, or 0.52%, to settle Tuesday at $42.25 on low volume with some 2.75 million shares changing hands versus the norm of 4.64 million shares.

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