Genitope shares fall nearly 10% on follow-on plans; Arena slides; SkyePharma up; MannKind drops

By Ronda Fears

Memphis, Jan. 23 - Biotech stocks continued to plunge early Monday on heavy selling, but traders said buyers began to "dip their toes into the market" in the afternoon, which stemmed the day's losses, although the biotech indexes still closed in negative territory. Meanwhile, the broader markets managed to reverse the big declines seen Friday and settle on higher ground Monday.

"On a down day we sometimes will get a muted rally in individual stock prices. However, we have a better chance of just holding up and establishing a new trading range. If there is news when the market is rallying, we may get a spike and a sell-off, then establish a new trading focus," said a sellside biotech stock trader.

"We are in a different world. Right now folks are still trying to get a footing on the New Year."

He said profit taking seemed to steer the biotech group into midday with many stocks dipping to levels that signaled buying, but on whole he noted that news in the sector was scant outside the ongoing saga of the multiple sclerosis drug Tysabri and its affect on the business of Elan Corp. plc and partner Biogen Idec, Inc.

Elan and Biogen announced Monday that the Food and Drug Administration will meet in early March to discuss the fate of their recalled MS drug Tysabri, which next month will have been off the market for a year following links to a fatal brain condition in patients taking the drug. Elan shares rose 44 cents, or 3.22%, to $14.10 while Biogen shares slipped 9 cents, or 0.2%, to $44.84.

Market sources said all eyes were on the upcoming initial public offerings slated to price this week - the first of 2006 - from Altus Pharmaceuticals Inc., Iomai Corp. and SGX Pharmaceuticals, Inc. The issuers are all aiming to get their IPOs off later in the week. Then, for sometime on the horizon, another MS name, Acorda Therapeutics, set its IPO price talk at $11 to $13 per share on Monday. The Hawthorne, N.Y.-based company concentrates on treatments for MS, spinal cord injury and other central nervous system disorders.

Genitope launches follow-on

Genitope Corp. on Monday launched a follow-on offering of 4.5 million shares, and the stock took a huge hit on the plans as the news tripped mixed reactions among players.

Redwood City, Calif.-based Genitope is focused on cancer treatments. Its lead product candidate, MyVax Personalized Immunotherapy, is a patient-specific active immunotherapy based on the unique genetic makeup of a patient's tumor and is designed to activate the patient's immune system to identify and attack cancer cells.

Genitope shares (Nasdaq: GTOP) fell 89 cents, or 9.68%, to $8.30.

Traders said the reaction to the news was mixed on how to interpret the capital raising effort in regard to the future of Genitope's MyVax, as its business virtually hinges on the fate of that product.

Genitope deal seen positive

"They don't need this kind of cash to finish bringing MyVax to market," said a buyside market source.

He said he was holding on despite the plunge in Genitope shares and added that he was not planning to add to his position at this time because of the decline or participate in the follow-on deal.

"With the fresh money, I am watching who is buying. Institutions, including private equity investors, do their homework and I would expect one large investor will take this entire offering," he said.

He expects that if indeed the move by the company means they are very bullish about the future of MyVax, then there will be time to boost his position before the stock really takes off.

"In December, Genitope announced the patent for the monoclonal antibodies. They have plenty of money for MyVax for now. The financing means that if by some chance the July [FDA] look is not positive, they will have enough money to get to the final look in 2007 and advance the monoclonal trials," the buysider said.

"I'm a bit surprised that the [size of the follow-on] is this low and what this tells me, unless they do another round prior to July, is that Genitope thinks it likely that the results are positive for this next look. MyVax will, one way or another, make or break this company."

Arena slides ahead of deal

Market sources said around mid-week Arena Pharmaceuticals, Inc.'s follow-on deal is expected to price, and probably earlier rather than later. One sellsider noted that the stock slipped Monday after holding fairly steady to gains seen last week in the face of the deal, which would dilute current stockholders.

Arena shares (Nasdaq: ARNA) on Monday lost 15 cents, or 0.89%, to close at $16.65. Last Tuesday when the deal was launched, the stock ended higher by 3.3%, or 52 cents, at $16.26.

San Diego-based Arena plans to sell 8.5 million shares. The company focuses on drugs in the areas of metabolic, cardiovascular, inflammatory and central nervous system diseases. It has APD356 in clinical trials for obesity and APD125 in clinical trials for insomnia, with research collaborations with Ortho-McNeil Pharmaceutical, Inc. - a unit of Johnson & Johnson - and Merck & Co., Inc. for various products.

There have been recent sellers of Arena shares because of severe competition in the race for the next diet pill craze, but there were some big players stepping into the story last week. On Monday, though, a couple of big buyside players who had sold off their positions said Arena shares had probably climbed as far as they could go before the deal, and they were waiting for a post-deal lull to make a decision about getting involved again.

"Arena should do well, but we see greater upside in other stocks" at this point, said a buysider based in Boston.

Another buysider remarked, "I am on the sidelines waiting until they announce the price for the secondary. I hope to get back in when it makes sense."

MannKind retreats by 3%

MannKind Corp. pulled back Monday after seeing some nice gains late last week while the markets were on the downswing.

Last Tuesday, the Valencia, Calif.-based company announced that a phase 2b clinical trial showed that its Technosphere inhaled insulin significantly improved the blood sugar control of diabetics when used with injected insulin. That sent the stock upward throughout the remainder of the week, but on Monday MannKind shares (Nasdaq: MNKD) lost 61 cents, or 3.31%, to end at $17.80.

A buyside market source said that there are differing opinions about inhaled insulin, and on top of that Nektar Therapeutics and Pfizer, Inc. are ahead of MannKind with their Exubera close to gaining FDA approval.

"MannKind touts that Technosphere adsorbs fast enough into the bloodstream to mimic the insulin spike associated with healthy people after eating. This is important because the insulin spike is lost in diabetics. Nektar and Exubera do not make this claim as far as I know," the buysider said.

"There's more to it, though. Their PR seems to want you to believe that an insulin spike measured in systemic circulation similar to that for natural insulin release is proof that this delivery effectively duplicates natural insulin release. But insulin is released into hepatic portal circulation, not into systemic circulation where all the inhaled insulins are delivered. The endogenous insulin pulses seen by the liver are short concentrations of insulin as much as five times the concentrations measured in systemic circulation."

Nektar shares (Nasdaq: NKTR) on Monday were unchanged at $19.25 while Pfizer shares (NYSE: PFE) edged up by 18 cents, or 0.73%, to $24.89.

SkyePharma cheered

SkyePharma plc shares shot up in the United States after the London-based pharmaceutical company announced that its chairman, Ian Gowrie-Smith, had resigned. The stock had fallen sharply in the United States on Friday after a trio of large institutional investors holding more than 13% of SkyePharma shares demanded a special meeting to oust Gowrie-Smith and name a replacement of their own.

Last month, SkyePharma began seeking potential acquisition offers and opened its books to potential bidders but in mid-January said it was unclear whether a suitable offer would be forthcoming. The company had indicated there was interest in parts of the company but no bids for the entire operation.

SkyePharma shares (Nasdaq: SKYE) rose 24 cents on Monday, or 3.06%, to $8.08.

In a press release, SkyePharma said a new chairman would be appointed at its Feb. 1 meeting, stressing it would strenuously oppose any attempt to force a candidate on the board. SkyePharma said Gowrie-Smith had been planning to leave since early 2005. The company said it started a search for a new chairman last year but put that search on hold while looking for buyers after chief executive Michael Ashton also said he would leave.

SkyePharma develops drug-delivery technologies, such as slow-release injections and tablets designed to release drugs at different points in the digestive process.

On Friday, SkyePharma shares had plunged on news that North Atlantic Value LLP and two other institutional investors planned to call for an "extraordinary general meeting."

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