Generex recoils along with most flu names; King Pharma clubbed; Elan, Biogen hit by analyst poll

By Ronda Fears

Memphis, Feb. 28 - It was not a day for the faint-hearted as biotech stocks took it on the chin Tuesday, tumbling harder than the broader markets that were pressured by weak economic data and interest rate hike fears.

But there were some mavericks out there buying on the downturn.

"Bulls make money, bears run and hide, and pigs get slaughtered," quipped a sellside trader at a brokerage in New York, who said he was inspired to buy on Tuesday's weakness. "What you saw today was a bunch of wimps pulling the plug. Biotechs are not going away, and besides, where would you put your money if you're trying to find a safe haven, huh? The best you could do is put it in your pocket."

Elan Corp. plc and Biogen Idec, Inc. were probably the most noted declines, both falling on a sellside analyst's poll of doctors showing that the professionals thought it was too soon for their controversial multiple sclerosis drug Tysabri to return to the market. The Food and Drug Administration is considering the matter at a two-day review slated to begin March 7, and in preparation of that, Elan said Tuesday that trading in its stock would be halted during the process.

Earnings also weighed heavily on King Pharmaceuticals, Inc., ViroPharma, Inc. and Teva Pharmaceutical Industries Ltd. Influenza names like Generex Biotechnology Inc. and BioCryst Pharmaceuticals, Inc. were big losers, too, on heavy profit taking, traders said, but Novavax, Inc. continued to rise on optimism related to a recent capital-raising effort in the PIPEs market.

Pair of PIPEs on the tape

PIPEs deals on the wires Tuesday from Antares Pharma, Inc. and Advanced Life Sciences Holdings, Inc. were met with mixed reactions, however. From north of the border, BioSyntech also priced a C$10 million private placement of units.

Advanced Life Sciences Holdings, Inc., which went public last summer with a deep price cut, is tapping the PIPEs market for $36 million to sell 10.2 million shares at $3.53 each plus five-year warrants for another for 5.1 million shares with a strike price of $3.81 each for five years. The company sold 6.4 million shares at $5 each - far below the sweetened range of $8 to $9 a share, which was cheapened from original plans at $11 to $13 - in its initial public offering last August. Advanced Life Sciences shares (Nasdaq: ADLS) on Tuesday added a nickel, or 1.45%, to settle at $3.50.

Antares taps PIPEs for $11 million

Antares Pharma is about to close an $11 million private placement of 8.77 million shares at $1.25 each plus warrants for 6.58 million shares with a strike price of $1.50 each. Exton, Pa.-based Antares, which concentrates on drug delivery systems and injectable device engineering, plans to use proceeds for acquisitions, in-licensing products, capital expenses and working capital. Antares shares (Amex: AIS) were up 5.4% in pre-market action but ended the day off by 11 cents, or 7.74%, at $1.31.

"[It] would have been far better to cut a deal with Big Pharma. If they tried it to no avail, then the handwriting is on the wall," said a buyside source of the Antares deal. "We've got the same thing here, though. Private placements with cheap options mean this company is junk."

Elan falls 9%, Biogen off 6%

Elan Corp. plc and Biogen Idec, Inc. shares were lower Tuesday in what market sources said was a reaction to a poll by Piper Jaffray analyst Deborah Knobelman of 140 doctors that found more than half thought it was too soon to return Tysabri to the market.

The companies voluntarily pulled Tysabri from the market a year ago after it was linked to a rare and often fatal brain disease. The FDA has OK'd the drug to resume trials on patients who had been taking it previously, and will conduct a two-day meeting beginning March 7 about it going forward.

"Elan was down sharply today on very heavy volume but it's been on the sell list for several weeks now, with downward momentum firmly in control," said a sellside trader. "There are a lot of bad signals in the charts with this stock. Apparent support in the $12.50 to $13.25 range meant little to no indication of negative momentum shifting.

"That said, Elan, however, should attract new buying in the $10 to $11 range," the trader continued. "If you like Elan's fundamentals just sit back and let this sort itself out. There is no 'entry point,' so to speak, presently in sight, so lots of patience is the order of the day."

Elan shares (NYSE: ELN) on Tuesday lost $1.22, or 8.75%, to settle at $12.73. Biogen shares (Nasdaq: BIIB) dropped $2.85, or 4.69%, to end at $47.25.

Elan off another 2% after-hours

While one buyside source said the Piper Jaffray poll seemed skewed. Elan's decision to halt trading of its stock during the FDA review of Tysabri was being interpreted as an ill omen and it sent the stock lower in after-hours activity.

At 5:19 p.m. ET, Elan shares were off another 26 cents from the close, or 2.05%, at $12.43.

According to reports, a buysider said, doctors in the Piper Jaffray poll included only 27% of those who had prescribed Tysabri.

"Piper Jaffray only took 27% of 140 who have prescribed before, so the rest of them have never used this drug. How did they know the drug?" the buysider posed. "If half of them, or even a higher percentage of them, had prescribed this drug, then what kind of results would you get? That would make more sense to me."

Generex reverses, loses 7%

Generex Biotechnology Corp., which saw a big bounce Monday ahead of a conference this week on the avian flu, reversed course Tuesday amid the market downturn. The company also announced Tuesday that it has received another $11 million as a result of the early exercise of previously issued warrants, bringing its cash position to more than $31 million - its strongest in more than four years.

"The selling started right at 10:30 a.m., which is when Generex's presentation at the Bird Flu conference in D.C. today was scheduled to end," said a buyside source in Atlanta. "I am hoping for a big upswing in the last hour of trading. I think we got rid of most weak hands this morning."

No late-day bounce was seen, however.

Generex shares (Nasdaq: GNBT) closed the day with a loss of 17 cents, or $7.14, to $2.21.

While Generex is a flu name, chief executive Anna Gluskin said the proceeds from the warrant exercises "puts us in a very good position to continue our global endeavors to commercialize Generex Oral-lyn, our proprietary oral insulin product, and the work of our Antigen Express subsidiary on its proprietary novel synthetic peptide vaccine programs for avian influenza and breast cancer."

The buysider said that the insulin drug is "probably the biggest thing" going for Generex. "The Ora-lyn recombinant insulin mouth spray will revolutionize the treatment of diabetes," he said. "The World Health Organization shows in 2004 there were 800 million people with diabetes worldwide and Generex is targeting a 30% market share, a $1.9 billion U.S. market."

King clubbed after results

The landscape for generic drug companies, even those like King Pharmaceuticals which is trying to move into mainstream drugs, is rugged. King posted a fourth-quarter loss compared to profits a year ago, which it blamed on wholesale inventory accounting problems, and players were concerned about charges and expense collaboration deals.

"Can it be good when a company starts off by talking of full-year results before the quarterly results? I don't think so, and as soon as I saw the opening statement, I was not feeling well and reached for my generics," said a sellside biotech stock trader.

King Pharma reported a fourth-quarter net loss of $94.6 million, or 39 cents per share, compared with net earnings of $14.7 million, or 6 cents per share, a year earlier. Excluding items, King said it earned 38 cents per share. Revenue rose 24% to $423.3 million.

Problems with incorrect wholesale inventory due to reporting errors made by two of King's major wholesale customers was a $30 million factor in the earnings miss, along with charges like the $188.7 million related to a collaboration with Pain Therapeutics, Inc. Special items racked up $284.4 million in charges.

King backs off patent fight

King's announcement that it had agreed with sanofi-aventis and Cobalt Pharmaceuticals, Inc. to dismiss the pending litigation relating to the enforcement of its patents pertaining to the heart medication Altace was a sore spot for some players.

The particular rub, as one buysider put it, was due to Altace sales "rocketing off the charts."

In fourth quarter, King posted a 64% gain in sales of the heart drug Altace to $150 million, but those figures were adversely affected by $13 million due to the wholesaler issues.

"What happened to King's 'We'll fight them on the beaches and in the streets' attitude toward patent challenges?" said a buysider at a hedge fund in Chicago. "Hmmm, [I] guess they're just joshing."

A buysider in the Bahamas, however, countered that "King's strategic pipeline investment strength will keep it on the rise. However, it will likely fall back just a little for a few days on the slight earnings miss and one-time charges, then once again build a base and head back up."

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