Anadys spikes on thin volume; Cubist extends gain on Cubicin nod; Tanox, Momenta, Epix up

By Ronda Fears

Memphis, May 26 - There was a big surge in biotech stocks Friday that players took to heart, but given that there is a long weekend and short trading week ahead, no one was yet willing to call a bottom. There was vindication, though, for those buying into Cubist Pharmaceuticals, Inc. ahead of a regulatory approval for label expansion of its antibiotic Cubicin.

"Having this rally today really makes me feel better," said one sellside trader. "It was a big relief, but I think we'll want to see a sustained rally in order to really get comfortable."

The Nasdaq Biotechnology Index on Friday gained 2.07%.

Cubist buyers on Thursday were breathing a collective a sigh of relief as well, with late-day news that the Food and Drug Administration approved an expanded label for Cubicin to add bloodstream infections including endocarditis.

Cubist shares (Nasdaq: CBST) climbed $4.30, or 20.24%, to settle Friday at $25.55, following a 10% gain Thursday. Volume in the stock soared, as well, topping 5.6 million versus the norm of 810,827 shares. Some 1.15 million shares were traded Thursday. The Cubist 5.5% convertible due 2008 also gained again Friday on the news, adding 0.5 point to 97.5 with the stock at $25.75.

Anadys shares add 16.5%

Anadys Pharmaceuticals, Inc. was up big Friday, which one trader attributed to a "Business Week" item, but he said the lackluster volume was a warning signal that the rise could peter out next week unless the company has some news.

He added, though, that Anadys - which is focused on treatments for hepatitis, other serious infections and cancer - will present at the Bear Stearns Biotech Boston Confab on Wednesday and that may be a venue for some news.

"There was a very nice article in "Business Week" out today talking about the stock being a 2 or 3 bagger. That's why price shot up. Volume was pretty light though, and that's some concern. But I was a buyer this morning. I hope it will bounce up to around $11 by Tuesday."

Anadys shares (Nasdaq: ANDS) nearly topped $11 by day's end, adding $1.55 on the day, or 16.58%, to close at $10.90. Volume was 395,155 shares versus the three-month running average of 304,719 shares.

Hepatitis is a hot area of focus for biotechs, the trader said. San Diego-based Anadys has core expertise in toll-like receptor-based small molecule therapeutics and structure-based drug design coupled with medicinal chemistry. Its lead clinical development programs include ANA975 for the treatment of hepatitis B and C, and ANA380 for hepatitis B.

Tanox takes off belatedly

Some small biotechs like Houston-based Tanox Inc. were getting a late start to the rally, but traders saw that as a good sign.

"In this one [Tanox] the news was digested slowly; it just sort of drifted sideways all week until today," said a sellside trader. "Given that we are going into a long weekend, that's a good sign that there were real players buying in for the long haul, not just trading on the news."

Tanox shares (Nasdaq: TNOX) gained $1.02, or 7.81%, to end at $14.08.

Earlier in the week, Tanox Inc. announced it has begun dosing in the phase 1 clinical trial of its TNX-650 aimed for Hodgkin's lymphoma patients who do not respond to chemotherapy or radiation treatment.

Tanox is currently testing TNX-650 at the University of Texas M.D. Anderson Cancer Center, with additional patient enrollment expected later this year at Memorial Sloan-Kettering Cancer Center in New York City. Enrollment in the trial is expected to continue throughout 2006.

The trial is testing TNX-650 in Hodgkin's lymphoma patients who have relapsed or are refractory to standard chemotherapy with or without radiation therapy, and who have not responded to or are unable to undergo autologous bone marrow transplantation.

Momenta sold into rally

For gainers related to short covering, some traders said they were taking advantage of the chance to lock in profits after buying during the routing of the sector over the past couple of months. Momenta Pharmaceuticals, Inc. was a specific name mentioned in that vein with one trader noting the stock has drifted lower from nearly $25 since early March.

Momenta shares (Nasdaq: MNTA) closed out the day higher by 83 cents, or 6.61%, at $13.38, coming off a 10% gain around midday.

"The opportunity to sell is now on the table," a sellsider said in early afternoon. "The trend and momentum of this stock is down and bounces like today is a rare gift."

Cambridge, Mass.-based Momenta concentrates on the sequencing and design of complex sugars for the development of improved versions of existing drugs, and new biological processes. Its most advanced product candidate is M-Enoxaparin, a technology-enabled generic version of Lovenox - a treatment for blood clots in deep veins, also known as deep vein thrombosis.

Epix move up signals buying

More traders were remarking that they were seeing strong signals for a buying trend in the biotech space, however, given the severe hit since mid-March. For some biotechs with big disappointments in their recent past, the price correction has been longer, which traders said now makes for a more pronounced recovery if they indeed are going to be survivors.

Epix Pharmaceuticals, Inc. was one beaten-down name seeing strong buying Friday.

"The graphs are looking awesome for this stock [Epix]," said a sellside market source. "Reversal signals are just starting. If we have [a] stable market for a week or so, we should see this past the $4 mark soon."

Epix shares (Nasdaq: EPIX) added 43 cents, or 13.56%, to close the week at $3.60.

On Wednesday, Predix Pharmaceuticals Holdings, Inc., which recently announced a definitive agreement to be acquired by Epix, announced that it has completed enrollment for a first phase 3 trial of PRX-00023 - a novel long-acting 5-HT1A agonist, in patients with generalized anxiety disorder.

Epix, a Cambridge, Mass., developer of drugs for magnetic resonance imaging, announced it would acquire privately held Predix in a stock deal worth about $90 million. As part of the deal, expected to close in June or July, Epix will assume about $7.8 million in debt. Also, shareholders of Lexington, Mass.-based Predix are eligible for a $35 million payment at certain clinical or strategic milestones.

Now, though, the sellsider said there are other forces at work.

"This has nothing to do with the acquisition but with their imaging agent," he said.

"The FDA has already done a turn around on one approvable letter with a small company that has a drug for pulmonary hypertension that sent the stock soaring this week [Encysive Pharmaceuticals, Inc.]. Some investors may sense a tone of change at the agency. Little do many people realize that one lone reviewer at the FDA can screw up a $100 million research project. That's why Epix is appealing."

Prior to the Predix acquisition, Epix was focused on pharmaceuticals designed to transform the diagnosis, treatment and monitoring of diseases. Its lead product candidate is Vasovist, an injectable intravascular contrast agent designed to provide visual imaging of the vascular system through magnetic resonance imaging, which has completed phase 3 clinical trials and has been approved in Europe.

In November, Epix and development partner Schering AG received an approvable letter from the FDA for Vasovist with a requirement of at least one additional clinical trial and a re-read of images obtained in previously completed phase 3 trials before approval. That led the company to cut its workforce to 48 from 93 employees.

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