Connetics rebounds to end higher; SeraCare plunges 48%; OraSure gains 8%; CuraGen rises by 4%

By Ronda Fears

Nashville, Dec. 20 - Biotech activity was not fazed by the historic mass transit strike in New York City, traders said, although traffic there was virtually ground to a halt Tuesday morning as Transport Workers Union workers walked off the job in the first citywide transit walkout since 1980.

"Of course, New York is New York, there's The Street, but we probably saw as much [business] as we would if this [transit strike] hadn't happened," said one biotech equity trader at a bulge bracket shop. "It's pretty quiet this week anyway, and next week will be even worse with the holiday."

Flu vaccine maker Chiron Corp. was barely moved by a bump that arose in its buyout by majority holder Novartis AG on Tuesday when ValueAct Capital Partners LP, a 5% equity holder, challenged the Novartis bid of $45 a share. ValueAct asserts the offer price is too low, even "tantamount to stealing the company," and said it would vote against it. But traders said that with Novartis holding 44% already and remaining big holders being the big banks - Citigroup, Morgan Stanley, Barclays - the chance that ValueAct could block the deal seems slim.

Chiron shares Tuesday declined 8 cents on the day, or 0.18%, to $44.68.

Meanwhile, deal flow was nonexistent and secondary trading was thin as well, but there were some big movers on news.

Connetics buyers step up

Connetics Corp. shares plunged more than 5% in pre-market activity Tuesday after the Palo Alto, Calif.-based dermatology drug maker cut its fourth-quarter revenue forecast late Monday, specifically blaming the threat of generic competition for its lead drug Soriatane, a psoriasis treatment.

"It was a headline reaction," said one trader. "They actually upped the EPS forecast, so buyers were loading up and eventually the stock turned around."

After opening at $13.76 versus Monday's close of $14.46, Connetics shares Tuesday closed the regular session up by 0.14% at $14.48.

Connetics said after the close Monday that it lowered its fourth-quarter revenue outlook due largely to the potential threat of generic competition, saying it now expects to report revenue of $41 million to $42 million, compared with its earlier estimate of $47 million to $49 million. But the company said earnings for the quarter would be 37 cents to 40 cents a share, versus its previous forecast was 24 cents to 26 cents a share.

Based on the revised fourth-quarter forecast, for 2005 the company now expects to earn 87 cents to 90 cents a share on revenue of $184 million to $185 million. For 2006, Connetics expects to earn 86 cents to 88 cents a share, with revenue forecast at $215 million to $218 million.

Early Tuesday a trader pegged the day's activity in the stock, surmising buyers would flock in. He suggested there would be fantastic buybacks by the company, and while that could not be confirmed, he said at the day's end that, in any event, "They could offer new shares, if they needed, at higher prices some day. Not a bad move."

Not all onlookers were positive on the Connetics story, though, as Jefferies & Co. analyst David Windley agreed the stock was "cheap, but not the hyper-growth story anymore." Jefferies maintained a hold rating on the stock with a price target of $15.

Indevus bonds bounce

Indevus Pharmaceuticals, Inc.'s 6.25% convertible bonds due 2008 have seen a nice run-up in the past week, adding nearly 9 points, a sellside market source said Tuesday. The issue hit par on Monday, according to the sellsider, gaining 4 or 5 points on the day.

The action had cooled off by Tuesday, but the sellsider said there may be "a little more juice to squeeze out of this story." He is looking for a summer 2006 spike, as news flow improves for the Lexington, Mass.-based biotech.

Last week, Indevus reported a narrowed net loss and higher revenue for fiscal 2005, thanks in part to renegotiated royalty payments for sales of its overactive bladder drug Sanctura. Indevus pulled in $33.3 million in revenue during the fiscal year ending Sept. 30, up from $18.7 million and shrunk its net loss to $53.2 million from $68.2 million.

And, the company posted, as of Sept. 30, more than $101 million in cash, equivalents and securities on hand.

In September, Indevus announced it received a $10 million milestone payment triggered by the launch of phase 3 human clinical trials for a new once-daily version of Sanctura. And the company has made a couple of significant acquisitions or in-licensing for male hormone treatments.

SeraCare falls to new low

SeraCare Life Sciences, Inc., which operates plasma collection centers, fell 60% early Tuesday on a delay in its financial reports amid an accounting discrepancy. By day's end the stock came off the $7.25 nadir during the session to close down by 48%, or $9.26, at $10.04, but it still was far below the previous 52-week low of $9.81.

On Tuesday the company said its auditor has raised concerns over how the company recognizes revenue and accounts for inventory and, as a result, it has indefinitely delayed fourth-quarter and year-end reports. The Oceanside, Calif.-based company said it will conduct an internal review to address the auditor's concerns.

"If the audit is bad, this stock could pull back a bit more," said a trader, adding, though, "This is a good short-term trade over the next couple of days." He noted that SeraCare shares had hit a new 52-week high of $23.50 earlier this month.

SeraCare said is in talks with lenders to waive a financial reporting deadline and has notified regulators of the review.

In a statement, SeraCare said that in addition to accounting questions, its auditor also suggested certain board members were "exerting undue influence" on the company's financial reporting process. In addition, SeraCare postponed its annual shareholders meeting that had been scheduled for Feb. 9.

OraSure praised for actions

OraSure Technologies, Inc. shares gained 8% on Tuesday after the company said it has taken several actions in response to recent reports that specific HIV clinical sites in San Francisco and New York City had experienced an increased level of false positive test results.

The stock ended up Tuesday by 63 cents at $8.56.

"OraSure has been certainly doing everything possible to fix the situation," said a buyside market source. "Let's not forget they also have other great products. I had learned about OraSure when the stock was at $12. I have much faith in the stock. Now, when it reached $8, yes I lost a lot of money, but this was an opportunity. I purchased more, making my average purchase price $10. I am sure OraSure will fall back on its feet. It's just a matter of time."

Bethlehem, Pa.-based OraSure said findings to date indicate that the majority of sites within the regions affected by the false test readings, as well as many other regions throughout the country, have reported low rates of false positives for oral fluid that are within the label claims for its OraQuick Advance HIV test.

This is helping progress an internal investigation into site specific factors which may be contributing to unexpected results recently reported, the company said. OraSure said it has contacted hundreds of customers that represent a large majority of all test usage in the field and will continue to closely monitor test performance throughout the country.

CuraGen bounces again

CuraGen Corp. said Tuesday it has elected to change the terms of a collaboration pact for a diabetes drug with Bayer Pharmaceuticals Corp., under which it will receive royalties on sales and stop paying development costs. On the news, the stock gained nearly 4%, or 12 cents, to $3.25.

Branford, Conn.-based CuraGen and Bayer now will not shares in the development costs, which were originally to be split between the two, but will split the sales. The changes are retro-effective as of Oct. 31, CuraGen said.

The drug under development is BAY 76-7171, formerly known as CT052, aimed at treating diabetes. CuraGen said it expects the drug will enter clinical development in next year's first half. Also, CuraGen said it retained the right to co-develop and co-commercialize any additional compounds resulting from the collaboration.

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