Genzyme, Genentech 2Q results counteract; Curis retraces losses; Antigenics, CV, Cell Genesys up

By Ronda Fears

Memphis, July 12 - Pulled in two directions by second-quarter earnings from Genzyme, Inc. - to the positive - and biotech giant Genentech, Inc. - to the negative - it was just about a wash for the biotech sector as a whole, but players were focused on individual names, many of which saw a nice move upward.

Genzyme reported a 19% spike in second-quarter revenue, with strong sales growth in its three top drugs, with adjusted earnings of 68 cents a share handily beating Wall Street estimates.

"Great results," said a Genzyme stock trader. "The market had low expectations for the stock coming into this and it comes in and blows them away."

Genzyme shares (Nasdaq: GENZ) jumped $4.76, or 8.21%, to close Wednesday at $62.74.

Meanwhile, a weaker-than-expected earnings report out late Tuesday from Genentech pressured the sector. The company posted net earnings of $531 million, or 49 cents a share, compared with $296 million, or 27 cents, a year ago, but, as in first quarter, sales of one of its best-selling cancer drugs Avastin and Herceptin fell short of Wall Street expectations. Total revenue, though, rose to $2.20 billion from $1.53 billion.

Genentech shares (NYSE: DNA) fell $3.08, or 3.66%, to end the day at $80.98.

The dive in Genentech was seen as an opportunity to load up by the above-cited sellside trader.

"How Genzyme is up and Genentech is down just boggles the mind," the trader said. "Genentech beat expectations by a much greater margin and sales are up a larger percentage."

Curis rebounds after dive

In other news related to Genentech, Curis, Inc. was rebounding Wednesday from losses the day before with a nearly 5% gain.

After Tuesday's close, Curis shares extended a 5.4% loss in the regular session with another drop by nearly 2% on news that it and Genentech had halted enrollment in the basal cell carcinoma phase 1 clinical trial and have decided not to move forward with the molecule in its current formulation.

Curis shares (Nasdaq: CRIS) climbed 6 cents, or 4.92%, to end Wednesday at $1.28.

"After the news was digested it didn't seem so bad," a trader said. "Looks like they are still in business anyway. This isn't going to put them under. What we are seeing, really, is some buying after a pretty solid string of losses for this stock."

Cambridge, Mass.-based Curis said the decision does not impact its collaboration in a systemic Hedgehog antagonist program for the treatment of solid tumor cancers, however.

Curis focuses on products that modulate key regulatory signaling pathways controlling the repair and regeneration of human tissues and organs. Its product development approach involves using small molecules, proteins, or antibodies to modulate these regulatory signaling pathways.

In addition to Genentech, the company has collaborations with Procter & Gamble Co. and Wyeth.

Pfizer target buzz lifts some

Outside of earning-driven moves, a buyside market source said there was considerable chatter moving Antigenics, Inc., Cell Genesys, Inc. and CV Therapeutics, Inc. He pointed to a recent sellside research item that listed the trio as prime takeover targets by Pfizer, Inc., but only Cell Genesys moved up on Wednesday.

"I think these make sense for Pfizer," the buysider said. "Perhaps they [Pfizer] are looking to complement their ticilimumab cancer franchise. Heart drugs are always a hot area. Moreover, these names look like good buys right now, whether the speculation ever turns out to be warranted or not."

He said his initial focus among that group was Cell Genesys, however, which seemed to mirror the broader market's view.

Cell Genesys shares (Nasdaq: CEGE) added 5 cents on the day, or 1.02%, to close at $4.93. Cell Genesys has the prostate cancer drug Gvax.

Antigenics shares (Nasdaq: AGEN) lost 6 cents, or 3.08%, to $1.89. Antigenics has Oncophage, a personalized therapeutic cancer vaccine.

CV Therapeutics shares (Nasdaq: CVTX) dropped 19 cents, or 1.44%, to $13.05. CV Therapeutics has the Ranexa heart drug.

"Maybe the market is saying enough of Cell Genesys going down, even in a bad overall market, especially with small cap biotechs with no earnings yet," the buysider said. "At some point, and maybe now, investors are going to say with all the good news this is an investment worth the risk at these prices. Time will tell."

Hi-Tech Pharmacal zooms

On a nice earnings report and hopes of approval for a generic version of Flonase in August, Hi-Tech Pharmacal shares took off Wednesday.

Amityville, N.Y.-based Hi-Tech, which makes over-the-counter drugs and generic prescription drugs, reported net income rose to $2.1 million, or 15 cents per share, from $1.9 million, or 15 cents per share, a year ago, on a 3% gain in revenue to $18.1 million from $17.6 million. Generic product sales dropped 13% while over-the-counter product sales grew 53%. The company submitted for approval of its fluticasone propionate nasal spray at the Food and Drug Administration in February.

"Now that earnings are behind us, I look toward approval of Flonase in August," said a buysider. "That will be a big push here."

Another buyside source, at a fund based in New York, however, was not so excited about Flonase.

"As long as other generics get approved, while Hi-Tech keeps waiting for their day, Hi-Tech will remain in the doldrums. Hi-Tech spent millions trying to get it out, and the more overdue its release, the more pain we feel here," he said.

"Ignoring Flonase, and on a more bullish note - the winter and spring quarters are always slowest for generics while the summer quarter is when they do their best sales - so this is probably a good time to bottom fish if you plan on holding through most of 2006."

Hi-Tech shares (Nasdaq: HITK) gained $1.01 on the day, or 5.88%, to $18.20.

Marshall pockets $14.3 million

Marshall Edwards, Inc. wrapped up a private placement for $14.3 million, selling 4.95 million shares at $2.90 each to a group of accredited investors who also received warrants for 1,732,499 shares, exercisable at $4.35 each beginning Jan. 11, 2007 and expiring July 11, 2010.

Located in North Ryde, New South Wales, Australia, Marshall Edwards is focused on developing treatments for cancer. The company is developing a drug called Phenoxodiol to treat prostate cancer.

"I wouldn't dismiss them right off," said one buyside market source. "They've got some clinical trials going on for a lot of their stuff and it's just too early to tell what they can do."

Of the PIPE itself, the buysider seemed a bit disappointed with the pricing level.

"I think they sold a little too cheap," he said.

Marshall Edwards shares (Nasdaq: MSHL) slipped 7 cents on the day, or 1.96%, to end Wednesday at $3.51.

Medisys transits to investments

To help transition from a company that makes medical diagnostic products to a company that invests in such concerns, Medisys plc intends to close a private placement of its stock for £4.7 million. The stock zoomed more than 45% on the news.

The company has agreed to sell 156.7 million shares at 3p each to 3i Investments plc and directors of the company. Once the deal is done, 3i will own 23% of Medisys' enlarged share capital.

Medisys is not only changing its business, but also intends to change its name and listing on the London Stock Exchange's Alternative Investments Market to MDY Healthcare plc.

Connected to the offering, Charles Spicer was named Medisys' new chief executive officer and, once the deal is settled, Alan MacKay will join the company has a non-executive director. MacKay is currently the head of health care at 3i.

Woodbridge, England-based Medisys is changing its line of business from making medical diagnostic tools to investing in biopharmaceutical companies and companies that make health care-related products.

Medisys shares (London: MDY) gained 1.40p on the day, or 45.16%, to close at 4.50p.

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