Encysive sinks on dilution worries; Acorda higher; Genitope gains; Ariad off

By Ronda Fears

Memphis, Aug. 7 - Biotech players seemed to be a little more upbeat, or at least coolly watching the sector slide amid moderate summer activity. Encysive Pharmaceuticals, Inc. headed the pack going south, while Acorda Therapeutics, Inc. took another group in a northerly path.

"Encysive, Elan, Millennium Pharma, Indevus, and many others posted big gains late last week," said a biotech stock trader at one of the bulge bracket firms.

"The sector rotation into biotech has just started and there is a ton of upside left. Many of the over-sold stocks in this sector offer tremendous value. When companies with pipeline potential are trading at book value, the risk/reward is too compelling to ignore, in my opinion."

But Encysive was giving it all back Monday after announcing a sharply wider second-quarter net loss as costs mount toward getting its pulmonary arterial hypertension drug Thelin approved and the delay of that effort overshadows results.

Due to the delay in the approval of Thelin by the Food and Drug Administration, the company now anticipates the need to raise additional cash and is exploring various financing options - leading many players to anticipate dilution from a follow-on offering. Encysive has been an active convertible bond issuer in the past, too, though.

In any event, the company report that its cash coffers are dwindling, with cash and equivalents at June 30 standing at $75.4 million, compared to $127.9 million a year before and $100.5 million at March 31.

Encysive shares (Nasdaq: ENCY) settled lower by 15 cents, or 3.55%, at $4.08.

"Something is brewing," said another sellside trader, right after the lunch hour. "There have been a lot of big block trades. It's kind of early for this kind of trading. I expect this kind of trading at the close."

Encysive posted a second-quarter net loss of $28 million, or 48 cents per share, widened from a loss of $19.2 million, or 33 cents per share, a year ago while revenue rose 23% to $3.7 million from $3 million, primarily due to higher royalties on sales of blood thinner Argatroban from GlaxoSmithKline plc.

With a financing effort in the works, and widespread expectations that Thelin will ultimately be approved in the United States, traders said a brief downturn in Encysive share price should be followed by improvement. The drug has been preliminarily approved in Europe, which is expected to be final in September with a launch soon thereafter.

Switch to Myogen sparked

Thus, the short strategy in Encysive has paid off and likely will continue for a little while longer, said a buyside source. Still, he has exited that name in favor of greener pastures, namely Myogen, Inc.

Myogen's ambrisentan, which is expected to enter the market in 2007, is a competitor for encysive's Thelin, so market watchers are looking for the first entrant and any lack of clarity is an overhang on stock performance for both names. And, because of the uncertainty, the buysider sees more potential in a short position at Myogen than Encysive in the interim.

"Shorts have made a lot of money on this stock [Encysive] this year and are still trying. Everyone always looks for gold in the place that it has found in the past, even if it has played out. It is just human nature. When the first approval comes, which is any day, there will be a mad rush by some of the shorts to get out. Some will wait for the second approval before they realize the gold is gone. At any rate their time is numbered," the fund manager said.

"I like the short play on Myogen. It does appear as if Myogen is about to have bad times, ironically perhaps, because of the positives at Encysive. Both of these stocks are in play by the shorts. That strategy has obviously helped investors in Myogen and could help us as well. The big dogs bark and the little dogs run."

Myogen also was negative Monday ahead of reporting second-quarter results after the closing bell. Myogen shares (Nasdaq: MYOG) closed off by $1.17, or 3.74%, at $30.15. In after-hours activity on it second-quarter report, the stock gained 13 cents, or 0.43%, to $30.28.

After the close, Myogen reported a second-quarter net loss of $18.5 million, or 44 cents a share, narrowed from a loss of $21.5 million, or 60 cents a share, as revenues grew to $4.1 million from $1.58 million a year before.

Acorda zooms up 16.5%

Buying beaten down biotech stocks that have debuted this year during the down-trodden environment is another strategy in play of late, too. Acorda Therapeutics, Inc. was a top pick in that niche on Monday, whereas Iomai Corp. saw that type of action last week.

Acorda shares (Nasdaq: ACOR) ended higher by 56 cents, or 16.47%, at $3.96, coming off the day's high of $4.15 amid light volume.

In February, Acorda went public with the sale of 5.5 million shares at $6.00 apiece - the low end of revised price talk of $6 to $7, which had been cut from original plans to price the stock at $11 to $13.

Hawthorne, N.Y.-based Acorda - focused on drugs to treat multiple sclerosis, spinal cord injury and other central nervous system disorders - earmarked proceeds for phase 3 clinical trials of its lead product Fampridine-SR to improve walking ability in people with MS and for other research and development.

Last week, Iomai zoomed by nearly 28% as bargain hunters picked up the stock, which has lost about half its value since debuting earlier this year and becoming one of the worst-performing IPOs of the year so far with a 53% decline from where it priced.

Also in February, Iomai priced 5 million shares at $7 each - the low end of the reduced price range of $7 to $9, which had been cut from original guidance of $11 to $13. Gaithersburg, Md.-based Iomai focuses on developing and commercializing vaccines and immunostimulants delivered to the skin.

Iomai shares (Nasdaq: IOMI) slipped by a penny on Monday, or 0.28%, to close at $3.54.

Genitope gets big interest

Speaking of the beaten down, a sellside trader also noted Monday a big buyer for a big slice of Genitope Corp.

Genitope shares (Nasdaq: GTOP) gained 24 cents on the day, or 10.13%, to $2.61 with some 1.8 million shares traded versus the norm of 498,222 shares.

"There was a BIG institutional bid at $2.49," the trader said. "I would take that as a sign of a rebound. I think we will see $3 by the end of the week."

Late last month, in a huge sell-off, Genitope shares lost nearly have their value on news that a safety board recommended the MyVax trial for non-Hodgkin's lymphoma continue, which was interpreted as delaying its advance. MyVax - Genitope's lead product candidate - is based on the unique genetic makeup of a patient's tumor and is designed to activate a patient's immune system to identify and attack cancer cells.

Ariad declines 3.5%

Back to the negative side of the ledger, Ariad Pharmaceuticals, Inc. and Big Pharma name Eli Lilly & Co. were both lower as they headed back to court Monday in a patent battle that the biotech world is watching closely. Also, Ariad is scheduled to report second-quarter results before the market opens Tuesday.

Ariad shares (Nasdaq: ARIA) dropped 14 cents, or 3.51%, to $3.85.

"This is nuts," said a buyside analyst. "No one knows what is going to happen but the overwhelming consensus is that Ariad prevails. If that happens, it will be a landmark case."

In the dispute, Cambridge, Mass.-based Ariad claims rights to its drug pathway, or the specific way a drug works in the human body, which differs from typical patent cases that cover a drug's composition, the buysider explained. Ariad sued Lilly alleging its Evista and Xigris infringe on its patent for the experimental drug pathway, NFkB.

Jurors in a federal court in Boston agreed with Ariad, slapping Lilly with $65 million in damages in May. On Monday, the two companies appear in a bench trial, where the judge will review the jury's finding on Lilly's petition for the judge to reverse the jury decision. If that doesn't work, Lilly says it will appeal.

If Ariad's patent is upheld, industry observers say that could affect not just new drugs but perhaps drugs already on the market.

Amid other legal pressures, Lilly shares (NYSE: LLY) lost 69 cents on the day, or 1.23%, to $55.58.

Lilly on Monday disclosed in a Securities and Exchange Commission filing that the number of unsettled lawsuits against the drug maker over its -psychotic Zyprexa - its best selling product - rose 75% from first quarter.

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