Holiday makes for thin market; Gilead, niche flu drug names go higher; Human Genome lower yet

By Ronda Fears

Nashville, Oct. 10 - In a quiet Columbus Day session with the bond market closed, traders said biotech players were looking to take advantage of the light volume to pick up names they have been eying for a while. For example, there was an extended play for influenza vaccine makers Monday, traders said.

"While it is unclear when or if the U.S. will be hit by an avian flu pandemic, it is clear that the U.S. government is intent on trying to prepare for and/or prevent the possibility," said JMP Securities analyst Adam Cutler in a report Monday.

"As a result, there is a major opportunity for pharma and biotech companies to develop and supply vaccines to prevent the spread of the avian flu and drugs to treat it in case people do contract it before vaccines are available."

Elsewhere, market sources said overall volume was light because of the holiday so they placed little emphasis on the day's moves. For the most part, however, traders suggested biotech players were cautious, noting that the major biotech indexes drifted lower Monday alongside the broader markets.

"It was a really easy day, boring actually," said one sellside market source.

Also extending moves from Friday was Human Genome Sciences Inc., after losing more than 40% just last week on news that its lupus drug showed disappointing trial results. The decline Monday was small but one trader noted that volume in Human Genome shares was about even with its average despite the holiday. The stock closed the session off another dime, or 1.14%, to end at $8.68.

From the primary side of the fence, the market is looking for Threshold Pharmaceuticals Inc. and Dynavax Technologies Corp. to price follow-ons later this week as well as the possibility of a couple of initial public offerings. But it was extremely quiet Monday insofar as biotech deals were concerned.

MedImmune, Chiron still losing

Monday brought a continuing a trend from Friday in which the smaller biotechs involved in flu vaccine saw huge interest amid discussions between the U.S. government and top executives from Big Pharma on ways to avoid a pandemic of the deadly avian flu.

Conversely, the big names, along with Chiron Corp. and MedImmune Inc., a couple of the bigger biotechs actually involved in the talks that took place in Washington, D.C., actually dipped Friday and also continued the slide Monday.

With Chiron yet to overcome production problems at its Liverpool plant that kept it from participating in last year's flu season, plus the ongoing turmoil over a spurned takeover bid from its majority equity owner Novartis AG, Chiron continued to slip. The stock Monday lost 24 cents, or 0.55%, to $43.08.

MedImmune is already developing an avian flu version of its vaccine FluMist but a time frame has not been established and analysts expect the U.S. government will offer a means to expedite development and approval. But it is also still unclear whether the avian flu will require a separate vaccine or simply be incorporated into existing flu vaccinations.

"Nobody is thinking of MedImmune as a bird flu play," said a sellside trader, but pointed out a sharp move in the stock after the closing bell although he saw no news to drive the move. In after-hour trade, the stock was seen lower by 60 cents, or 1.82%, he said, but it retraced that dip to trade at $32.93, pretty much the earlier closing level.

MedImmune shares ended Monday off by a penny, or 0.03%, at $32.92.

Sleeper flu names rouse interest

Rather, the big winners in the story were the small niche players. In addition to Gilead Sciences Inc., Vical Inc. and NanoViricides Inc., which both saw big gains Friday, BioCryst Pharmaceuticals Inc. and Novavax Inc. joined the party on Monday.

"There are lots of buyers for these smaller stocks that have some angle on the bird flu thing," said a buyside market source.

NanoViricides was mentioned by traders Friday as one of the niche flu vaccine makers with an elevated interest in light of the shortages anticipated for the coming flu season - historically beginning in October - in addition to the new threat of a pandemic avian flu outbreak. The stock added another 6 cents, or 33.33%, to 24 cents on Monday.

Novavax gained 39 cents, or 18.48%, to $2.50 on Monday. The company has collaborative agreements with the National Institutes of Health for the development of an avian flu vaccine to prevent a pandemic outbreak.

JMP's Cutler added to the small list a company called BioCryst had dropped development of its flu drug Preamivir but he suggested that it is possible the company will resume development in light of the newly attractive market opportunity.

BioCryst shares climbed $1.33, or 11.42%, to $12.98 on Monday.

Gilead Sciences heat turned up

Production constraints have already boosted demand for standard flu vaccine supplies, including Tamiflu which is marketed by Roche Holdings AG and for which Gilead receives roughly a 10% royalty, and GlaxoSmithKline plc's Relenza.

There is some debate over whether the existing flu drugs will fight the avian flu, but analysts noted that given the lack of other options, health officials are likely to stockpile these with the hope that they will be helpful in the event of a pandemic

Gilead could stand to be the big beneficiary in the Tamiflu story, as a market source reminded of Gilead's push to have Roche return the full marketing rights to Tamiflu because Gilead asserts Roche has not marketed it aggressively enough. This issue may not be resolved for another 12 to 18 months, however, and analysts are saying Gilead is more likely to get a larger royalty than claim full rights to Tamiflu.

Either way, the buyside market source said Gilead seems to be positioned to be one of the big winners in the 2005-2006 flu season. Gilead shares Monday added another 52 cents, or 1.09%, to $48.03.

"I think if nothing else, Tamiflu prices will rise, so I'd be in on Gilead," the buysider said.

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