Neurocrine drops as data digested; Somaxon higher as buyers step in; Spectranetics up; Sonus soars 8%

By Ronda Fears

Memphis, April 28 - Biotech stocks closed the week on higher ground, but traders said it was a net loss for the group on whole as earnings bombarded the tape. Several bits of trial news also steered the group, mostly to the downside.

"It was a tough week," remarked a biotech stock trader at one of the bulge bracket firms. "I am glad it's over, behind us. We can move on now." He said he was feeling more positive that much of the sector's correction, if that indeed was what took place, has been accomplished.

"We are looking for an upswing around mid-year, through the end of the year," he said. "The sector is still very strong. There is a lot of good news yet to come."

The two biggest examples of the latter were DOV Pharmaceuticals, Inc. and Discovery Laboratories, Inc., with those stocks losing 40% to 50% after ill-boding trial news late Monday. Both slid for most of the week but ended Friday with positive moves, though still far behind where they began the week.

DOV Pharma shares (Nasdaq: DOVP) closed Friday up 2 cents, or 0.25%, at $8.14 after starting the week around $15.

Discovery Labs shares (Nasdaq: DSCO) ended the week with a gain of 13 cents, or 4.68%, to $2.91, after opening the week just shy of $5.

Neurocrine off 2% on trial

Neurocrine Biosciences, Inc. released preliminary results from a short phase 2 study of its drug to treat endometriosis, NBI-56418, and while the company characterized the data as positive, analysts were hesitant to read a lot into the news thus far. The stock took a dip on the event.

While high dose treatments had notable results in the three-month data, analysts also noted a large placebo effect in the study. Thus, some were waiting for six-month data to make a better evaluation. It is anticipated that San Diego-based Neurocrine will start a large six-month phase 2b study for NBI-56418 in endometriosis in third quarter.

Neurocrine also has Indiplon, an insomnia drug, that is being considered for approval May 15 by the Food and Drug Administration.

Neurocrine shares (Nasdaq: NBIX) ended Friday with a loss of $1.24, or 2.12%, to $57.36.

Somaxon up as a sleeper buy

One buyside source in Atlanta said he was selling Neurocrine to buy into Somaxon Pharmaceuticals, Inc. Moreover, he said Neurocrine was overvalued and he has doubts about Indiplon getting approved, whereas Somaxon has Silenor in phase 3 trials showing great results.

On April 10, he said, Somaxon reported that the four-week trial demonstrated Silenor is effective in treating insomnia with no side effects. Silenor is a low-dose form of doxepin, a generically available drug that has been sold for decades to treat depression.

San Diego-based Somaxon has said it is looking for a partner on Silenor.

Somaxon shares (Nasdaq: SOMX) on Friday opened sharply lower but closed the day higher by 4 cents, or 0.2%, at $19.74. The buysider said big buying in the stock pushed it throughout the session, although volume was very light with just 18,748 shares traded versus the norm of 63,093 shares.

Spectranetics ends week up

A buyside market source said he has heard chatter about Colorado Springs, Colo.-based medtech Spectranetics Corp. looking to make an acquisition abroad with proceeds from its pending follow-on offering. The company has not confirmed any specific acquisition, or specifically that the funds would be used for acquisitions, but it has suggested strong undertones toward that end.

Calls to Spectranetics this week by Prospect News were not returned, but company executives said last week on its first-quarter conference call that they were in a quiet period related to the pending follow-on deal.

With a follow-on offering on the table, Spectranetics shares have made several surprising upswings this week sans any news on the wires, which lead one sellside onlooker to surmise that the stock was getting support from the underwriters or insiders, and he agreed that speculation about an acquisition also might be a factor. He said he had not heard any specific names, however.

Spectranetics stock extended gains from earlier in the week, which began in earnest Wednesday and boosted it more than 15 % by week's end to flirt with a new high. On Friday, Spectranetics shares (Nasdaq: SPNC) gained 30 cents, or 2.39%, to settle the week at $12.85 versus the 52-week high of $13.38.

Last week, the company announced plans to raise up to $50 million in a follow-on stock offering. The company makes single-use medical devices used in cardiovascular procedures in conjunction with its excimer laser system, which includes disposable catheters and sheaths.

"Until they [Spectranetics] come out with a device that can be used as stand alone therapy, the stock is a hold. This may be strange, but I have heard mention of Veryan Medical Ltd., that it may be getting a look" by Spectranetics as a merger candidate, the buyside source said.

"They're located in London, England. A small research firm that has a patent on a product called SwirFlow, a vascular stent. This may offer a long-term solution to stent restenosis. I believe this mimics natural blood flow, unlike the conventional two-dimensional stents."

According to its web site, Veryan Medical was incorporated in June 2003 as a spin-out from Imperial College in London. It designs and makes implantable vascular devices. The company said it has received total equity investment to date of £3.1 million and has option agreements in place for another £5.2 million. Its outside shareholders are Nikko Principal Investments Ltd., Imperial College Innovations Ltd., Oxford Gateway Fund and the National Endowment for Science and Arts.

NicOx slips on PIPE

Elsewhere from abroad there were a couple of biotechs active in the United States on Friday with PIPE transactions. Among them was French biotech NicOx SA with a €45.52 million deal in which it sold to a group of 43 U.S. and European institutional investors 4.55 million shares.

The offering, calculated at a price of roughly €10 per share, represents 14.2% of the company's issued share capital. NicOx said proceeds will be used for ongoing research and development on HCT 3012, its lead product for osteoarthritis.

NicOx shares (Frankfurt: NXO) on Friday dropped €0.87, or 7.56%, to close at €10.64.

Located in Sophia Antipolis, France, NicOx is focused on developing nitric oxide-donating drugs used to treat inflammatory and cardio-metabolic disorders.

Sonus boosted by stock deal

Sonus Pharmaceuticals, Inc. shares got a big lift Friday on news that it is preparing to wrap up a direct placement of stock that will put $30.5 million into its coffers.

The company plans to sell 6.1 million shares at $5.00 apiece to a group of new and existing institutional investors led by Federated Kaufmann Funds. The price was a 4% discount to the $5.21 closing stock price on April 27.

Sonus shares (Nasdaq: SNUS) on Friday gained 41 cents, or 7.87%, to settle the day at $5.62.

"I'd have thought they might have gotten a slightly better price, but since there appear to be no warrants, maybe it's not a bad deal. At least it's out of the way and we probably won't see another financing until well into next year," said a sellside trader.

"Sonus Aug. 5 puts saw selling, with 4,000 contracts trading at average price of $0.325 - close to the bid at the time," he added. "This is notably heavy trading in Sonus options and could suggest expectations for more limited volatility and limited downside in the stock but it looks like the $5.00 floor is in."

Bothell, Wash.-based Sonus, focused on oncology drugs, said proceeds will be used for the phase 3 clinical development of its Tocosol Paclitaxel product and to expand its pipeline. The company has a collaboration and license agreement with Schering AG for Tocosol Paclitaxel.

"They'll now have $40 million in cash at the end of 2006. That may be enough to get them all the way to approval in early to mid-2008, at which time the milestone payments from Schering start to kick in, along with royalty revenues from sales," the trader said.

Sonus chief executive Michael Martino, he continued, "has said that approval based on non-inferiority triggers an initial milestone of $81 million, and approval based on superiority triggers a payment of $125 million, so either way, it's unlikely further financings would be necessary. Whether this will be enough money to get them to that point will probably depend on how many supplemental trials they do."

Labopharm rockets both borders

In a cross-border deal from Canada, of which there have been a couple recently, Laval, Quebec's Labopharm, Inc. raised $88 million from an upsized follow-on offering, and the new U.S.-listed stock took off, gaining more than 10% before easing back at the close, plus sent the Canada-listed stock soaring in tandem.

Labopharm sold 11 million shares to be listed on the Nasdaq priced at $8.00 each. That compares to Labopharm shares listed on the Toronto Stock Exchange that closed Thursday at C$9.02.

The U.S. shares (Nasdaq: DDSS) closed the day up by 9.36% at $8.80, after trading up to $9.15 with some 3.87 million shares traded. The Canada shares (Toronto: DDS) added C$0.97 on the day, or 10.75%, to settle at C$9.99 after trading as high as C$10.20 with 1.5 million share traded versus the norm of 403,541 shares.

The U.S. deal was boosted from plans to issue 10 million shares.

Labopharm has earmarked proceeds to support the commercialization of its once-daily painkiller tramadol, advance development of existing and new product candidates, working capital and other general corporate purposes.

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