CancerVax crashes; Serono slips; Protein Design Labs cheered; Celgene off; Keryx up

By Ronda Fears

Nashville, Oct. 4 - CancerVax Corp. took the brunt of the beating from investors as it announced its lead candidate, a melanoma treatment, had failed a late-stage clinical trial, but Swiss biotech partner Serono SA also took a hit from the news.

Mirroring much of the biotech sector on Tuesday, Celgene Corp. was retracing gains seen the previous day as buyers stepped up on weakness from news the Food and Drug Administration had delayed approval of its drug Revlimid for use in a blood cancer by three months.

"Volatility is driving interest in the biotechs right now," said a sellside trader. "That is goods news."

The major biotech indexes were higher for much of the session, he said, but afternoon trade sent many of the components of those indexes snapping back. But, he also noted that there were several big gainers for the day, mostly without news.

"You're just seeing volatility players, or trading on screens people have set up, charts," the sellsider. "There really wasn't a lot of news."

CuraGen Corp. dropped 25 cents, or 5.04%, to close at $4.72. The trader also mentioned Keryx BioPharmaceuticals Inc. gaining - the stock rose $1.09, or 6.48%, to $17.90 - and AtheroGenics Inc., which was up 64 cents, or 4.01%, to $16.60. He said hedge funds, perhaps convertible arbitrageurs, were pushing AtheroGenics.

CancerVax crippled

CancerVax and Serono announced they were dropping their program for Canvaxin, a melanoma cancer treatment, after it failed a phase III trial, which in turn caused CancerVax to slash its workforce by nearly half. It was far more devastating news for CancerVax, as Canvaxin was its lead drug candidate, but the company's restructuring plans helped ease the plunge in the stock somewhat.

At the open, CancerVax shares traded down 44.5% after showing a sharp decline in pre-market activity. Following a company conference call on the news, though, traders said the stock found a few buyers on the weakness and managed to settle out the day off by $1.25, or 43.15%, at $1.66.

A sellside marked source said the news "cripples [CancerVax's] clinical pipeline." With the failure of its lead pipeline drug, he said the company now will not reach profitability within the scope of Wall Street projections, because the rest of its pipeline is in early stage clinical trials.

"For me, it looks like [the] end of CancerVax, just like Able Laboratories [now in bankruptcy after all its drugs were recalled by the FDA]," said a buyside market source. "So I wouldn't waste any money on buying on the downswing. I predict it's going to file for bankruptcy in another couple of months."

CancerVax said it would focus its resources on developing other products and potentially explore an acquisition of products and technologies. Also, the company said it would cut its work force to 80 employees from 183. The company has a non-small-cell lung cancer drug set to begin phase II trials in early 2006 and others in earlier stages of development. At the end of second quarter, CancerVax posted cash of $66.4 million.

"Cutting the work force is a good move in light of the phase III trial, and there are several good candidates in the pipeline," said another buysider. "But there is still a few more down ticks left in this one. Then, at some point, it becomes a buy."

Serono shares in the United States lost 23 cents, or 1.39%, to $16.27. In Europe, Serono shares dropped CHF 6.00, or 0.7%, to CHF 853.00.

Protein Design Labs cheered

Protein Design Laboratories Inc. stockholders were cheering the company, pushing the stock up Tuesday by 3% before it eased back at the close. The stock ended higher by 61 cents, or 2.08%, at $29.90 after trading as high as $30.50 - flirting with its 52-week high of $30.79.

"They have a backlog of royalties and a nice pipeline," said a buyside market source. "I say we are just shaking off the momentary downfall of the markets. Institutions will carry it higher in a hurry. I do not expect significant [product] news yet, though."

However, the company said it would provide analysts and investors with a research and development update 8 a.m. ET Friday as some were expecting good news.

"I expect good news [Friday] and even better news on Monday," said another buysider. "After the recent drift, it would be a very positive sign if Protein Design Labs put in a new high today. The next few months are terrific momentum periods and to get in that jet stream, we need a show of strength now."

Keryx up on short covering

Keryx BioPharmaceuticals Inc. was gaining on short covering, traders said, although the company is not expected to report third-quarter earnings for another month or so. The stock gained $1.09, or 6.48%, to $17.90.

"The problem is we have been here before with buy recommendations and price targets and this may take the stock to new highs but it's never a serious break out and we usually come back with the market," said a buyside market source.

"Too many people are used to this pattern and sell into the highs, including me. Only real news will hold these levels. If you don't want to sell here then be careful buying at these levels is what I say."

New York City-based Keryx is focused on diabetes and cancer. Its lead compound under development is KRX-101 (sulodexide), which is in a pivotal phase III and phase IV clinical program. Additionally, Keryx has KRX-0401 in phase II clinical development for treatment of tumors.

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