NPS Pharma weak ahead of FDA; Dyax plunges; Insmed up slightly; Vertex dives; Elan off, Biogen up

By Ronda Fears

Memphis, March 9 - NPS Pharmaceuticals, Inc. shares extended a slide Thursday ahead of the Food and Drug Administration action on its osteoporosis drug Preos, which is widely anticipated to result in a delay in its approval.

After a big run-up on Monday, NPS Pharma shares have been in retreat mode and extended that trend ahead of the FDA decision scheduled Friday. Onlookers expect that the FDA may delay the approval by as much as 90 days due to turnover in the FDA division that is reviewing Preos. One analyst also noted that the FDA has asked for and NPS has submitted additional data analyses.

Moreover, traders said Thursday that the market seems to have already priced in a brief delay.

NPS Pharma shares (Nasdaq: NPSP) dropped 21 cents, or 1.47%, to $14.04 on Thursday.

Ultimately, NPS Pharma players expect Preos to get approved, however, and that will be a giant boon.

"Based on projections done by our analysts and others, the expectation is that Preos will be able to retrieve at least a $1 billion share of the $18 billion [osteoporosis] market, in five years," said a buyside market source in Chicago.

"Taken into account the same amount of shares, 46 million outstanding, this would imply a stock price of about $21.75. The usual biotech multiple is around 3.5, so this would result in a price of $76 in five years."

Insmed follow-on on deck

Insmed, Inc. was on deck Thursday with a follow-on offering of 20 million shares off the shelf, and players were heartened by the stock finding support to close out the session a tad higher.

"The shakeout of weak hands and short-term traders is complete," said a buyside market source, who said he has a position in Insmed but is not participating in the new deal. "Insmed remains steady above the important support level of $2.10. Volume is dwindling, suggesting that most investors, whether in or out of the stock, are in a holding pattern at this time, possibly waiting for the deal, like me."

Insmed shares (Nasdaq: INSM) settled up a penny, or 0.46%, at $2.19 on Thursday just ahead of the deal pricing. Some 1.14 million shares of Insmed changed hands Thursday, compared with the three-month running average of 3 million shares.

Glen Allen, Va.-based Insmed has earmarked proceeds to launch its lead product, Iplex, which is the only FDA-approved once-daily IGF-1 (Insulin-like Growth Factor-1) replacement therapy in children for growth hormone deficiency. The company also aims to pursue marketing authorization for Iplex in Europe.

Dyax bags $30 million in deal

Dyax Corp. netted $30 million from a spot follow-on offering of 5.5 million shares at $5.65 each, discounted from Wednesday's closing level of $6.20. On the heels of the deal many holders exited the story on the dilution, causing the stock to settle under the issue price.

"It's the same exact thing that happened when they offered up 6 million or so shares at $4 bucks last year, you saw some temporary trading at below $4, then it came back," said one Dyax player, who said he was holding his position.

Dyax shares (Nasdaq: DYAX) on Thursday dropped 62 cents, or 10%, to $5.58 with 1.79 million shares traded, versus the norm of 199,723.

Cambridge, Mass.-based Dyax has earmarked proceeds for research and development and general corporate purposes, including funding the progress of its lead product candidate, DX-88, into phase 2 clinical trials for the prevention of blood loss during certain on-pump heart procedures, specifically coronary artery bypass graft surgery.

The deal was a revival of sorts. Late last summer, Dyax announced plans for a follow-on offering of 9 million shares, with estimated proceeds of $52.8 million based on Aug. 19 average price of $5.87, but the deal never came to market.

Elan pulls back, Biogen higher

Elan Corp. plc retreated while Biogen Idec, Inc. continued to climb in the wake of news Wednesday that an FDA panel recommended the resumption of trials for their multiple sclerosis drug Tysabri.

"This is the only drug Elan has, basically," remarked a sellside trader. "Biogen has several; it is a small part of what they do compared to Elan. If the drug should run into trouble again, Elan is out of business, Biogen is not."

The FDA panel recommended that Tysabri use should resume but the agency will later be considering under what guidelines, or possible restrictions, the drug will be allowed to return to trials. Tysabri was pulled in February 2005 after three patients developed a rare brain disease known as progressive multifocal leukoencephalopathy, or PML, and two died.

Elan shares (NYSE: ELN) fell 49 cents, or 3.10%, to $15.32 on Thursday. The stock skyrocketed in just a half hour or so of trading Wednesday after being halted during the FDA discussions.

Biogen shares (Nasdaq: BIIB) gained another $2.03, or 4.46%, to close the day at $47.54.

Elan held back by shorts

Elan was being held back Thursday and even pushed into negative territory, one sellsider said, "because after sleeping on it," a lot of the negative points in the FDA panel vote came to the forefront.

Thus, he said short selling prevailed in Elan as players worked to hedge their bets.

"In the interest of the short $15s, any rise in price will have to be knocked down," he said, noting that probably there will be no final FDA vote on Tysabri until after options expire on March 17, next Friday. "There's a lot of fear of exposure, big money at stake. This thing will be professionally pinned at the $15 level."

Elan bonds thinly traded

Elan's credit issues moved higher on the Tysabri news late Wednesday with the general consensus among traders that the issues moved up several points in tandem with the spike in the stock.

The 7.75% bonds were pegged late Thursday afternoon at 96.625 bid, 97.125 offered, compared with a level of 96.25 bid, 97 offered late Wednesday. The 7.25% issue was quoted late Thursday afternoon at 99.5 bid, 100.5 offered, steady with where the issue was last seen Wednesday night. The convertible floater was seen at 99.75 bid, 100.75 offered in the last hour of the session.

Many analysts have been figuring Tysabri sales into their forecasts, one sellside biotech analyst said, which even with some tweaking to the upside on the FDA panel vote will still pose considerable risk for Elan in terms of its ability to service debt.

"We believe the share price reaction post the panel meeting reflects an over-optimistic view that Tysabri sales could exceed $2 [billion], which we continue to believe is highly unlikely," said Erica Whittaker, a biotech analyst at Merrill Lynch, in a report Thursday. She is forecasting Tysabri sales for Elan in 2006 at $62 million, peaking at $500 million in 2010.

Cell Therapeutics higher

Cell Therapeutics beat analysts' estimates and shot up in pre-market action by more than 6% but gave back nearly all of that by the closing bell, and finished the retreat in after-hours action.

For fourth quarter, the company reported a net loss for the quarter of $18.7 million, or 27 cents a share, narrowed from a net loss of $43.5 million, or 72 cents a share, in fourth-quarter 2004, while revenues shrank to $1.2 million form $8.1 million. For the year, there was a net loss of $102.5 million, or $1.59 a share, compared with a net loss of $252.3 million, or $4.67 a share, in 2004, as revenues dropped to $16.1 million from $29.6 million.

Cell Therapeutics shares (Nasdaq: CTIC) traded as high as $2.04 on Thursday but ended at $1.93, up by just 3 cents, or 1.58%. Then in after-hours trade, the stock was seen lower by 3 cents at $1.90, where it closed Wednesday.

"Our efforts to reduce expenses and raise additional capital over the last several months have placed us in the position this year to focus on advancing Xyotax [its ovarian cancer drug] toward marketing applications in the United States and Europe and on reporting the interim analysis for the pixantrone phase 3 trial in non-Hodgkin's lymphoma," said James A. Bianco, chief executive of Cell Therapeutics, in a statement.

Debt sees heavy conversions

Seattle-based Cell Therapeutics said fourth quarter results included a gain of $40.7 million on the divestiture of Trisenox and a charge of $23.6 million for the conversion of $38.4 million of its 5.75% and 4% convertible notes.

In November, the company sold $82 million of 6.75% convertible notes due 2010. As of Feb. 28, the company said, $56.1 million of the notes had converted into 21.3 million shares and, as a result of the conversions, it paid make-whole interest of $18.9 million.

With the divestiture of Trisenox to Cephalon Corp., Cell Therapeutics said it recorded a $71.2 million gain for the year, with the potential to earn an additional $100 million in milestones.

The company ended the year with cash and equivalents of $69 million, which excludes proceeds of $24.6 million held in escrow until April 30 to fund potential redemptions of 30% of the 6.75% convertible senior notes.

Vertex drops 6% on trial data

Vertex Pharmaceuticals, Inc. reported phase 2 data for its rheumatoid arthritis drug candidate VX-702 and said the drug met its primary endpoint versus a placebo, but the improvement was modest and the stock tumbled.

Vertex shares (Nasdaq: VRTX) lost $2.30 on the day, or 5.71%, to close at $37.98.

"Vertex has had one heck of a run, and from the people I talk with, should continue up from here," said a sellside trader. "If I was long, and I'm not, this might be a nice chance to sell some calls or add to your position."

The data indicated a response in 38% and 40% of patients at two dose levels of VX-702, compared with 30% for those taking a placebo.

Vertex shares took a hit, a buyside source said, because VX-702 "is seen as the most important drug in the pipeline," and the somewhat disappointing trial results "caused a scare."

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