Adolor ends better but off highs; ArQule off amid internal changes; Hemispherx spikes 7% on PIPE

By Ronda Fears

Memphis, April 13 - It was a light session Thursday ahead of the market close for a three-day weekend and one marked by further disappointment with the week's two initial public offering stocks settling underwater. There were optimists, though, looking for brighter days ahead - and the broader biotech indexes ended the week firmly in positive territory.

"I think everyone is taking a breather today. Next week should move the market up. I am not expecting any overnight miracle but we should move up as we get closer to the end of the earnings season," said one sellside biotech stock trader.

Another trader agreed: "With Passover off today [Thursday] and with the market closed tomorrow [Friday] many took a five-day reprieve. And many weren't at their desk last night even. So I wouldn't treat today's trading as a normal day."

ArQule declines over 2%

ArQule Inc. on Thursday said it was making several management changes, including replacing its chief financial officer, in a move to redouble its effort to focus on oncology research. Some traders shrugged off the news, but the market overall reacted in skeptical fashion.

"Looks like a non-event, also between the Jewish holiday and immigration protests today, I think the market is on a holiday now until Monday. Go play golf," said a sellside trader. Immigration protests have been staged across the United States in the past several weeks as U.S. lawmakers debate on an overhaul of immigration laws.

ArQule shares (Nasdaq: ARQL) settled Thursday lower by 13 cents, or 2.1%, at $6.07.

"So many changes and shifts such as this only give folks pause to question," said a buyside trader. Players are wondering, he added, "What is going on? What kind of turmoil is behind the scenes? Who is the power base? Why is the CFO pushed out? Why were two board members pushed out? Why the new general counsel? Why the new medical officer? WHY?"

ArQule announced several changes in its management and board of directors that it said reflect its transition to a sustainable research and development-based company from a chemical services business.

Joining ArQule will be Peter Lawrence in a new position of general counsel and chief business officer. Louise Mawhinney, chief financial officer, is planning to depart but will remain with ArQule until the completion of a search for her successor.

In addition, the company has initiated a retained search for the position of chief medical officer.

The buyside trader said the ArQule move seemed to raise more questions than it answered and in general suggested a state of turmoil within the company.

ArQule move raises questions

"I have followed ArQule fairly closely for about three years and there has been a lot of shifting around at the top. Personally? I think it raises more questions than answers," he commented.

"Did they leave on their own? Were they pushed out in power plays? Were there fights over company direction? Were there fights over drug development strategy? Over finance strategy? Did any of these that are leaving see things they did not like - if they left on their own accord? If they did not leave on their own accord, and were pushed out, then what does it say about the company's ability to hire the right person in the first place?

"Why does there seem to be such a shift in top personnel every two years or so? What is going on really behind the scenes? The answers to these questions investors do not know. Turmoil and change can be good, but it can be bad as well, and Wall Street does not like uncertainty. So, since we do not know the answer, I expect Wall Street will not celebrate with a higher stock price today. I expect lower."

That said, he added that if you trust the people ArQule put in place then it "might be a chance to nibble."

ArQule's targeted products are designed to affect key biological processes that are central to cancer. Its Activated Checkpoint Therapy platform is generating products designed to improve the way cancer patients are treated by selectively killing cancer cells and sparing normal cells through direct activation of DNA damage response/checkpoint pathways. Its lead program, based on the E2F pathway, is partnered with Roche Holdings AG.

Adolor settles higher by 1%

Adolor Corp. and GlaxoSmithKline plc announced that Glaxo has completed enrollment of the phase 3 clinical program to evaluate the efficacy and safety of the oral investigational drug Entereg for the treatment of gastrointestinal adverse events caused by opioids used for persistent non-cancer pain.

"This stock is ready to take off like a rocket. Everything is progressing as scheduled," said a buyside market source in Boston. "It's only a matter of time until Entereg hits the market and The Street takes notice. This is a great entry level for this stock."

Exton, Pa.-based Adolor and Galxo also said that enrollment of a phase 2b study for Entereg in cancer patients with persistent pain has also been completed.

While volume was thin, Adolor shares (Nasdaq: ADLR) gained as much as 3% or more before easing back to close out the day higher by 21 cents, or 0.96%, to $22.15.

The companies are targeting the submission of a New Drug Application in mid-2007 but the study enrollments were completed ahead of schedule.

"Millions of people worldwide take opioid analgesics to treat moderate-to-severe pain," said David Madden, interim chief executive of Adolor. "The successful completion of the enrollment of this large-scale program faster than expected may indicate a willingness on the part of these patients to try alternatives to the poor therapeutic options available today."

Discovery Labs' rise fizzles

Discovery Laboratories, Inc.'s was higher by over 5% early Thursday, which itself was a big pullback from the after-hours run-up Wednesday as the company updated players on the plan to move its lead drug Surfaxin forward, but the pop lost all its fizzle by the end of the day and closed lower.

"Looks like Discovery Labs has stabilized, so I bought some," said a sellsider. "But I didn't go mad. It was a sloppy market today."

Warrington, Pa.-based Discovery Labs held a conference call Wednesday to provide an update on the progress of the New Drug Application for its premature infant respiratory drug Surfaxin, for which the Food and Drug Administration has requested more data for the second time. The company has set up meetings with the FDA over the next couple of months to iron out their questions.

Discovery Labs shares (Nasdaq: DSCO) ended Thursday off by 6 cents, or 1.35%, at $4.39 after trading in a band of $4.37 to $4.62. The stock had shot up 11.5% in after-hour activity Wednesday during the company's conference call.

The sellside trader's strategy idea going into the new waiting period for Surfaxin approval was to buy the stock and sell June 5 calls at 40 cents, which he said would provide a maximum return of 21% in about two months time, plus would give a 9% downside hedge.

Hemispherx soars on PIPE

After inking a $50 million equity line with Fusion Capital II, LLC, Hemispherx Biopharma, Inc.'s stock soared in trade Thursday.

Hemispherx wrapped up a $50 million equity line with Fusion Capital on Wednesday and the stock edged up slightly after the deal was announced Wednesday afternoon, gaining a penny to close at $2.95 and moving up another 7 cents in after-hours trading.

The stock (AMEX: HEB) took off Thursday, however, gaining 21 cents on the day, or 7.21%, to $3.16.

Under the terms of the 25-month equity line, Fusion may buy shares of Hemispherx at a price equal to the lesser of lowest trade prices immediately before a draw or the three lowest closing stock prices for the 12 trading days before a draw. On Tuesday, the day before the deal was announced, the stock lost 16 cents to end at $2.94.

Hemispherx received a $20 million equity line from Fusion in July 2005 with the same pricing terms as the latest transaction.

Philadelphia-based Hemispherx is focused on treatments for viral and immune disorders. Among other things, it is working on an avian flu vaccine.

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