Adams secondary launched; Isis off; Durect up; Inspire, BioCryst rocket up; Merck bonds weaker

By Ronda Fears

Nashville, Nov. 30 - BioCryst, Inc. was sharply higher Wednesday on a half-billion-dollar alliance with Roche Holding AG and Inspire Pharmaceuticals, Inc. took off in a big way ahead of anticipated Food and Drug Administration approval Thursday for one of its new eye drugs.

Otherwise, secondary action was erratic, traders said, noting a pullback in the biotech sector during the final few minutes of the session. But several were hopeful that December would open Thursday with a definite uptrend.

On the primary market front, a secondary offering of 5.66 million shares of Adams Respiratory Therapeutics, Inc. was launched after Wednesday's close - some four months after the initial public offering for the Chester, N.J.-based maker of over-the-counter respiratory drugs, such as Mucinex. The stock priced at $17 in the July IPO and hit a new high of $49.73 on Nov. 22 just before the secondary was announced on Nov. 23.

Adams Respiratory shares on Wednesday slipped 28 cents, or 0.63%, to close at $44.29.

"This baby is fixing to get driven deeper than a counter-sunk screw," said a source at a Dallas-based biotech fund, who said he was not involved in the secondary offering. "I just got off after a 17-point light volume run. Not sticking around for the 24-point drop. That extra 5 million share secondary offering is; in my opinion, like the management is trying to raise cash for lean times ahead. This thing should consider itself lucky to bottom at the IPO price. Cash out and wait for the next flavor of the day."

The two biggest Adams Respiratory sellers are Chicago-based EGI-Fund Investors, LLC, which is selling roughly 1.7 million shares to reduce its stake to 16.87% from 38%, and the New York-based Perseus-Soros BioPharmaceutical Fund, LP, which also is selling 1.7 million shares to reduce its stake to 9.93% from 15.29%.

BioCryst up 37.5% on Roche

BioCryst Pharmaceuticals, Inc. soared Wednesday on news that it has inked a license agreement with Roche Holding AG involving an up-front payment of $25 million and future payments that could amount to $530 million, in addition to royalties on product sales.

"Half a billion dollars for a drug that is just at phase 1 is, like, wow," said a market source.

BioCryst shares Wednesday shot up $4.43, or 37.51%, to $16.24.

The BioCryst compound, BCX-4208, is in early stage testing against autoimmune diseases, including rheumatoid arthritis, psoriasis and Crohn's disease, and may be a potential treatment for organ transplant rejection and auto-immune diseases. The company has said it expects to start a phase 2 study in first quarter.

BioCryst, based in Birmingham, Ala., is also developing a drug to be used to treat the deadly H5N1 avian flu virus, and Roche markets Tamiflu, a vaccine developed by Gilead Sciences, Inc. and which is being used to treat the avian flu. Earlier this week BioCryst submitted an application to the FDA to start clinical trials for Peramivir in early 2006.

Inspire rises nearly 19%

Inspire Pharmaceuticals, Inc. surged Wednesday, a day before the FDA is due to consider its dry eye treatment diquafosol tetrasodium. One buysider said analysts were expecting approval for the new drug, and pointed to a Piper Jaffray report to that affect.

The stock gained $1.14 on the day, or 18.69%, to close at $7.24.

In February, Inspire Pharma shares lost nearly half their value after the drug missed its primary endpoint of statistically significant improvement in corneal clearing in a late-stage clinical study.

Durham, N.C.-based Inspire Pharma develops drugs in the ophthalmic and respiratory therapeutic areas. It has the rights to market Elestat and Restasis in the U.S. under co-promotion agreements with Allergan, Inc., plus five product candidates in clinical trials relating to specific receptors known as P2 receptors.

Merck credit appears murky

In the wake of Merck's big restructuring announced earlier this week, which came on the heels of similar steps taken last year, there's still the overhang of liability from thousands of personal-injury lawsuits it faces related to the painkiller Vioxx. Then, there are dwindling drug pipelines and the ever increasing threat of generic competition as patents expire.

Amid the murky picture, equity analysts have been leery - credit analysts, too.

GimmeCredit director of research Carol Levenson said in a report Wednesday that while the cost savings, estimated by Merck at $4 billion by 2010, "may sound impressive, in the context of Merck's overall cost base they are less significant."

Merck didn't go into great detail about the timing or source of the cost savings, and the credit analyst said that the estimated annual savings amount to an unimpressive 5% of Merck's current expenses.

"We're not sure precisely which element of Merck's announcement the stock market didn't like, but Merck's stock fell nearly 5% after the news, even though its 'normalized' earnings outlook was essentially unchanged and management reaffirmed its commitment to both the dividend and the stock buyback program," Levenson said in the report. "Considering its fuzzy future and its legal overhang, we do not think Merck's bonds offer compelling value."

Merck's 2.5% bonds due 2007 were said to be off about a quarter point Wednesday. Merck shares ended lower by 24 cents, or 0.81%, at $29.40.

Alkermes shares lose 2%

Alkermes, Inc. made a presentation at a conference hosted by Lazard Capital Markets on Wednesday in New York, and while the event sparked no news on the wires, Alkermes shares lost 39 cents on the day, or 2.1%, to $18.18.

"There probably are a few people throwing in the towel after Alkermes couldn't take out the $19.87 swing high [a new 52-week high hit on Sept. 7]. This stock is very hard to read short-term with all the disguising of orders," said a sellside market source.

"That's my take, but who knows? I think some are trying to pick up shares on the cheap for window dressing, which will start Dec.1. Let's see, biotechs made a nice leg up Dec. 1st last year, and so did Alkermes."

Cambridge, Mass.-based Alkermes' lead commercial product, Risperdal Consta, is the first and only long-acting atypical antipsychotic medication approved for use in schizophrenia and is marketed worldwide by a unit of Johnson & Johnson. Its lead proprietary product candidate, Vivitrex, is being developed as a once-monthly injection for the treatment of alcohol dependence and is coming up for FDA consideration in early 2006.

Durect shares up another 4%

For the second day in a row, Durect Corp. shares got a nice lift with traders mentioning that there were some big block purchases.

"Big interest is back" for Durect, one sellside market source said. "There was a lot of big buying in the last 30 minutes of trading. This is usually an indication of Smart Money coming in."

Durect shares Wednesday gained 20 cents on the day, or 3.97%, to $5.24.

"This is a great entry level, in my opinion," the sellsider said. "Given the secondary offering, which took all the upward momentum out of Durect, I think we are now seeing some technical retracement at the new offering level set by those lovely bankers who want to make themselves look good ... think we'll see 6 bucks again by Dec. 10, think we will see 8 bucks by early to mid January, for target 10 bucks by early March. Of course, I can be wrong, but I'm putting at least a 75% probability that this upward trend will re-emerge shortly."

On Nov. 2, Durect Corp. priced a $37 million follow-on offering of 7.4 million shares and a secondary offering of 32,256 shares of common stock at $5.00 a share, discounted from the previous day's close of $5.95.

A buyside market source in Atlanta said he was watching for some indication of "whether the institutions that bought in the secondary [and follow-on] will defend the $5.00 price they paid for Durect. Usually they do [and] we are seeing this. The key is to watch the block trades. If the mutual funds start selling, they will more than likely sell with block trades. Most mutual funds do not hold stocks that trade below $5 for more than a certain number of consecutive days. If the mutual funds quit defending the price, we are in trouble."

Cupertino, Calif.-based Durect develops proprietary drug delivery platform technologies in the areas of pain, and other chronic diseases and disorders.

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