Vical up on PIPE; Amgen sinks on FDA delay; Critical up 16%; Omrix off 14.5% on profit taking

By Ronda Fears

Memphis, Oct. 16 - Mixed news on the regulatory front from biotech giant Amgen, Inc. and opinions about an upcoming vote for a new drug from Replidyne, Inc. made for a rocky session in biotech stocks Monday. Another contributing factor to the rather flat settlement in the biotech indexes, traders said, was speculation on takeovers and the like, although there was no big news on that front.

Critical Therapeutics, Inc. continued to climb on observations from Friday that it was emitting strong signals that it would be open to a merger in announcing top level board of director changes. Following a 5% gain on the news Friday, Critical Therapeutics shares (Nasdaq: CRTX) shot up 25% on Monday before easing back to close higher by 39 cents, or 16.2%, at $2.79. The stock traded as high as $3.28.

"The deadwood has been removed and someone that knows the business has joined the company. This should be very good for the stock price," said a sellside trader of the Critical event.

"If any of the drugs in their pipeline show any signs of promise, this stock will go up tenfold. Another possible option is that this company will be bought at a reduced premium before news of a successful drug reaches The Street. Either case is fodder for upside."

Lexington, Mass.-based Critical Therapeutics, which focuses on respiratory and inflammatory diseases, said Friday that Shaw Warren has resigned from the board and will be replaced by Cory Zwerling. Zwerling, with a 19-year tenure at Bristol-Meyers Squibb Co., will serve until 2008 and chair a Strategic Advisory Committee established by the board.

Amgen off 1%, earnings weigh

With resistance on the regulatory front for one of Amgen's drugs, not to mention that third-quarter earnings are scheduled to be released in a week, the stock slumped in trade Monday.

Amgen shares (Nasdaq: AMGN) dropped 79 cents, or 1.08%, to close at $72.43.

The Thousand Oaks, Calif., biotech said Monday that it has received an approvable letter from the Food and Drug Administration for bi-weekly and once-monthly dosing of its Aranesp in chronic kidney disease patients with anemia not undergoing dialysis, but the agency requested an additional clinical trial suggesting expanded approval could be delayed by 12 to 18 months.

Analysts observed that expanded use in chronic kidney disease could be the next driver for Aranesp sales, but the delay may increase competitive risks from Roche Holding AG's drug Cera, if it is approved and found not to infringe on Amgen's patents.

"I really don't quite understand the knee-jerk reaction as Amgen will run another trial and get approval for Aranesp dosing in kidney patients not on dialysis," said a sellside trader.

"It's a short-term setback for a stock with such long-term potential. Oh well, read the tea leaves the way you see them."

Amgen's third-quarter results, which are slated to be reported next Monday, also tethered the stock, the trader added.

Replidyne shares gain 6.5%

On the other hand, Replidyne, Inc. was sharply higher on a positive research note that its drug Faropenem for pneumonia and sinusitis will be approved without the need of any further trials when it comes up for an FDA vote on Friday.

Replidyne shares (Nasdaq: RDYN) gained 62 cents on the day, or 6.52%, to end at $10.13.

"We expect FDA to grant an approvable letter for Faropenem for the treatment of community acquired pneumonia and acute bacterial sinusitis, but not require new studies for these indications on the [Oct. 20 date for an FDA vote]," said Merrill Lynch analyst David Munno in a report Monday. "We also expect approvable letters pending new studies for chronic bronchitis and skin infections."

The analyst estimated Replidyne shares will be worth $14 or higher with the approvable letters and no new studies, but $5 to $6 if new studies are required as that could delay launch to the 2008/2009 or even 2009/2010 respiratory infection season.

Louisville, Colo.-based Replidyne went public this past summer.

Vical to pocket $12.5 million

On the primary market front there are several initial public offerings slated to get off this week, but on Monday the top news was Vical Inc. gearing up to wrap a direct placement of its stock for $12.55 million in which it will sell 2.5 million shares to a group of institutional investors at $5.02 each - only a slight 1.5% discount from Friday's close of $5.10.

Vical shares (Nasdaq: VICL) gained 9 cents on the day, or 1.76%, to settle at $5.19 after trading in a band of $5.11 to $5.36.

San Diego-based Vical also said Monday that trial results show its Vaxfectin adjuvant boosts immune response to seasonal influenza vaccine.

"This is an interesting play with multiple trials. If the technology has any value, this is a totally undervalued stock because there are so many applications with such broad utilization. I have been quietly accumulating a position here and finished today," said a buyside market source in Boston.

"First the Vaxfectin news, then they sell more stock to raise money. Obviously the two are related, but both seem pretty positive for the stock. You got to love a company that grabs cash it doesn't immediately need to stay afloat and sells for two times its tangible book in this space. Even better, most of the tangible value is in cash."

Vical said proceeds from the PIPE will be used to develop the company's ongoing programs and any remainder for general corporate purposes. The company develops DNA-based vaccines for infectious diseases, including several influenza strains such as H5N1, and cancer.

The company said Monday that data from a study of Vaxfectin in mice showed an adjuvant originally developed to boost the immune response to its DNA vaccines also boosts the immune response to a conventional seasonal influenza vaccine. Results from the studies suggest that Vaxfectin may be used as a dose-sparing agent with conventional flu vaccines against seasonal or pandemic flu strains.

Omrix news prompts exits

Omrix Biopharmaceuticals, Inc., another biotech that went public earlier this year, announced positive phase 3 clinical trial results for human Thrombin, but the stock took a dive as the news incited many players to exercise their exit strategies or to take profits, according to one sellside trader.

The New York-based biotech announced positive results from its phase 3 clinical trial of human Thrombin in achieving hemostasis in general surgery procedures. The study was designed to support broad product labeling for the use of Thrombin as an aid to control bleeding during surgery. Omrix said it expects to file a Biologics License Application with the FDA by Nov. 15.

Omrix shares (Nasdaq: OMRI) fell $2.91, or 14.29%, to end at $17.45 after trading in a wild intraday range of $16.75 to $20.76.

"Can you say exit strategy? There was a mad dash to the door from some of the original investors, the venture funds. There also was just some profit taking from insiders," said the trader.

"My observation tells me at $19.33 the stock basically bottomed out. How do you explain the dip? Well, the IPO 180-day lock up period ended. It does not mean the company is in trouble. It merely means insiders want a piece of short-term profit; thus, they sell right after lock-up."

A buyside source in New York said he was holding his position in Omrix, although he heard many players were switching into another name.

"Is the glass half empty, or half full? The technical signals, as I see it, are starting to flash sell, but I am adding my position," the buysider said.

"To be able to understand Omrix products one has to have general medical knowledge, and experience in very narrow field of hemostasis. Basically, there is no statistically proven difference in side effects from human and bovine Thrombin. The target of this trial was to prove that human Thrombin is not only equally safe to bovine Thrombin but better product on long run in terms of possible higher rate of allergic reactions to animal material. The point is that human products are less prone to allergic reactions than animal. You could ask would you rather have a human heart transplant, or you would rather have a cow heart; you know what would be the answer."

ZymoGenetics versus Omrix

ZymoGenetics, Inc. was a pick among some Omrix players taking profits in the latter stock, market sources said.

"I think ZymoGenetics is poised to take off," said a sellside trader. "They have rThrombin [recombinant Thrombin] complete through phase 3 and a couple of other drugs going into phase 2. It's all green."

ZymoGenetics shares (Nasdaq: ZGEN) gained 35 cents, or 1.91%, to settle Monday at $18.64.

The trader also noted a Merrill report circulating Monday expressing a view that ZymoGenetics' product was superior to Omrix's.

"We see safety, antibody formation and implications for bleeding complications as key points of differentiation for the various Thrombins. While we are not expecting any material immunogenicity for Omrix's human thrombin, we prefer to reserve judgment until we see Omrix's final data on this particular issue," said Merrill analyst Hari Sambasivam in the report.

"We continue to believe that ZymoGenetics' recombinant thrombin is likely to emerge as the dominant player in this segment given comparable efficacy, safety associated with recombinant manufacturing (no contamination by viruses, prions) compared to thrombin derived from human or bovine plasma, and the lower rate of immunogenicity."

Omrix's data was for its plasma derived human thrombin in a 305-patient non-inferiority study versus King Pharmaceutical, Inc.'s bovine thrombin, the analyst pointed out.

Nabi gains another 3%

Nabi Biopharmaceuticals climbed another 3% in trade Monday after the company sent a letter to shareholders and announced that its nicotine addiction vaccine NicVAX program has been accelerated, including the process of looking for a partner.

"Wall Street likes this deal," with Fresenius, a sellside trader said.

Nabi shares (Nasdaq: NABI) gained 20 cents, or 3.05%, on Monday to settle at $6.75.

In addition to trial data on PhosLo, Boca Raton, Fla.-based Nabi said in a letter to shareholders that it has completed enrollment for the phase 2b proof-of-concept study on NicVAX three months ahead of schedule. As a result, the company said it expects to have trial results early in second-quarter 2007.

"This accelerated timing helps to advance our stated goal of selecting a development and commercial partner for NicVAX and then with that partner, initiating pivotal phase 3 trials in the second half of 2007," the company said in the letter.

Also Monday, Nabi announced positive results in a clinical trial for its PhosLo compound in chronic kidney disease, which was sold last week to Fresenius AG for up to $150 million. The company said positive study results will support license applications in the United States and Europe and are expected to be filed during 2006 and will seek approval for the broader use of PhosLo in pre-dialysis patients. If successful, PhosLo would be the only phosphate binder on the U.S. market that has a labeled indication for Stage 4 chronic kidney disease patients.

Nabi will receive royalties on PhosLo.

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