Amgen stronger; ReGen cheered; Cleveland BioLabs debuts lower; Amylin, Nektar weaker

By Ronda Fears

Memphis, July 21 - Biotech players were disappointed with the sharp downswing on selling in the sector despite a firm gain in biotech giant Amgen, Inc., after a positive review of its second-quarter results.

"I think this is remarkable, but maybe not a huge surprise, given that we are going into a weekend when there is significant turmoil in the Middle East and a lot of fear that the U.S. will step in, which will rock the broader markets," remarked a biotech stock trader at one of the bulge bracket firms.

As for Amgen, he said he still thinks the stock is a bargain under $70, but added, "Of course, now that The Street has analyzed the numbers, there are some guys saying it could go to $93 or some such number. I think that's a little much, but certainly it's a buy right here."

Amgen beat analysts' expectations for second quarter, despite a 12% gain in stock option expenses and its $1.1 billion acquisition of Abgenix, Inc.

Amgen shares (Nasdaq: AMGN) gained $2.23, or 3.49%, to $66.15. But the sector on whole was weaker, with the Nasdaq Biotechnology Index tracking the broader market lower with a 0.06% decline.

Encysive up ahead of FDA vote

Outside of moves related to second-quarter results, Encysive Pharmaceuticals, Inc. was stronger ahead of the Food and Drug Administration vote coming Monday on its Thelin for pulmonary arterial hypertension, which had a setback at the agency earlier this year.

Encysive shares (Nasdaq: ENCY) added a dime on the day, or 1.61%, to settle Friday at $6.31.

"The Nasdaq, S&P, Dow, even [Encysive rival] Myogen are down today, but Encysive is up in front of the FDA vote," said a buyside market source in Boston. "I think that's a good sign."

In April, the FDA issued an approvable letter for Thelin pending more information, which heated up the competition with Myogen, Inc. Encysive shares were halved on the FDA news in April but have clawed back somewhat since then and got a nice bounce Friday ahead of the next agency vote on Thelin.

"Assuming the news is good Monday, we see Encysive out front in this race, even if Myogen follows up with a better drug," the buysider continued. "But a lot of mainstream [sellside] analysts like Myogen a lot better."

Myogen drifts with sector

Myogen was lower not only on pressure from the optimism surrounding Encysive's Thelin, a trader said, but options expiring Friday.

Myogen shares (Nasdaq: MYOG) ended the day off by 61 cents, or 2.2%, at $27.16.

"There were a lot of traders dumping this [Myogen] on the options expiry," the trader said. "The fear is that Thelin gets approved and then Myogen gets clocked. So, no one is wanting to be holding on Monday."

Myogen is developing Ambrisentan for pulmonary arterial hypertension with partner GlaxoSmithKline plc and reported positive phase 3 clinical trial results in May.

But the stock is seen as risky since Myogen has not successfully taken a clinical candidate all the way through regulatory approval and commercialization, the above-cited buysider noted.

Cleveland BioLabs loses 10%

In the light primary zone, Cleveland BioLabs, Inc. on Friday priced its $10.2 million initial public offering but sources said there was little enthusiasm for the tiny IPO and it sank in the immediate aftermarket.

"This one didn't register on a lot of radars," said a fund manager who focuses on IPOs.

Cleveland BioLabs priced 1.7 million shares at $6 apiece - the low end of guidance of $6 to $8 - via bookrunner Sunrise Securities Corp. The stock (Nasdaq: CBLI) debuted underwater, opening at $5.99 and traded as low as $5.01 before getting lifted to close at $5.40 - a 10% decline from the IPO level.

The Cleveland-based biotech said net proceeds, estimated at $8.5 million, would be used to continue the development of its radioprotectant and anticancer drug compounds and for research and development of new generations of drugs.

ReGen boosted by stock sale

British biotech ReGen Therapeutics plc gained 9% on Friday after announcing that it has raised £1.11 million through the follow-on offering of 111 million shares at 1p each - pat with the stock's close on Thursday.

ReGen shares (London: RGT) on Friday, after news of the stock sale hit the tape, added 0.09p, or 9%, on the day to settle at 1.09p.

Proceeds, the company said, will be used for the commercialization of Colostrinin per a recently announced deal with Metagenics Inc. and for further development of peptides as well as new formulations of zolpidem for the rehabilitation of people with brain injury.

Two non-executive directors are subscribing to the offering - Peter Garrod, for 2.5 million shares to bring his total stake to 66.25 million or 9.54% of the company, and Keith Corbin, for 1 million shares making his total stake 1.105 million or 0.16%.

Amylin slides 7.5%

Amylin Pharmaceuticals Inc. confirmed on Friday that sales of its diabetes drug Byetta rose to $98.6 million in second quarter, which would be a 46% gain from first quarter, based on partner Eli Lilly & Co.'s results, but Amylin shares were sold off as Lilly warned about its 2006 revenue guidance.

Still, with Amylin due to report its second-quarter results on Monday and analysts expecting a nice upside surprise, players in the stock were disappointed with the decline Friday.

Amylin shares (Nasdaq: AMLN) dropped $3.70, or 7.49%, to $45.71.

"We are getting slaughtered today when the Byetta number looks pretty darn good to me. Was there some tacit belief that there would be an even bigger upside surprise? I just don't get it," said a buysider in New York.

A trader said it was a matter of supply-and-demand dynamics coupled with competition for Byetta that have cause some players to renege their positions in Amylin.

"Short-term numbers are meaningless in an environment where sales/earnings are affected by temporary supply constraints due to overwhelming product demand," the trader said. "The fattening of America and the increase in diabetes - almost to epidemic proportions - I think make Amylin a uniquely positioned company for future growth. Yes there are emerging competitors but this is a huge and growing market. I say hang tight and buy more."

Byetta, a twice-daily insulin injection for type 2 diabetes, was launched in June 2005 and booked $7.5 million in second quarter a year ago. In the first quarter, Byetta saw sales of $68.3 million. Amylin, Lilly and Alkermes, Inc. are developing a long-acting release version of Byetta that would be a once-weekly dosage.

However, second-quarter sales of Byetta were held back when demand for the product started exceeding supply in April, and Lilly stopped providing samples and vouchers as supplies were limited by a shortage of cartridges that fit into a special injector pen to administer the drug. Lilly said it expects the cartridge supply constraint to be resolved sometime during the third quarter.

Meanwhile, Lilly suffered from its 2006 outlook although it posted profits for second quarter. For the full year, Lilly said EPS would be in the range of $3.10 to $3.20 and sales growth would be at the low end of its previously forecast 7% to 9% increase. Lilly shares (NYSE: LLY) fell $1.61, or 2.86%, to $54.65.

Nektar retraces recent gains

One of the diabetes challengers, Nektar Therapeutics, on Friday retraced gains from the day before amid rising concerns sparked by the Byetta news.

"This [Exubera] has the potential to be a huge flop because it is an inhaler, but that is also why it is seen as a potential blockbuster," the trader said. "I think a lot of players were just hedging the bets, so to speak, today."

Nektar shares (Nasdaq: NKTR) lost 39 cents on the day, or 2.34%, to $16.30 after gaining 5% on Thursday when the company raised its revenue projections for Exubera even as partner Pfizer, Inc. said the launch of the pioneering inhaled insulin will be delayed a couple of months.

Pfizer said that because the manufacturing process for Exubera is so complex, it will not be available until the beginning of September. Many observers expected Pfizer to begin shipping the product this month.

With the delay in Exubera's launch, Pfizer said it would spend more time training physicians and other health care professionals. A sellside trader said that the Byetta news pressured Nektar because of similar problems with Exubera. Also, he said there is rising anxiety that Exubera will not be embraced because of skepticism about measuring the correct dosage of insulin with an inhaler.

Nektar, which makes the inhaler used to deliver Exubera, is due to report second-quarter results on Aug. 3.

Pfizer shares (NYSE: PFE) closed higher Friday by 12 cents, or 0.51%, at $23.83.

Aspriva up on short covering

Not all was on a negative path Friday, however. Canada-based Aspreva Pharmaceuticals Corp. saw a big gain, which traders attributed to early short covering ahead of its second-quarter report next week.

Aspreva shares (Nasdaq: ASPV) shot up $1.91, or 9.37%, to $22.30.

"There was a massive amount of short covering today," said a sellside trader, noting the volume in the stock.

"I've heard people saying the charts say 'buy,' and rumors like something is cooking, insinuating that there is some takeover or merger brewing, but this is just short covering, plain and simple."

For second quarter, the company earlier this month forecast $51 million in revenue due to strong prescription growth, surpassing Wall Street expectations. Aspreva is slated to release second-quarter results on Wednesday.

Enthusiasm for the biotech story, one trader said, was boosted as well last week by positive news that Mycophenolate Mofetil, or CellCept, has been approved for label expansion to treat lupus nephritis in Malaysia. The company is partners with F. Hoffman-La Roche G on the drug, which has been approved for prevention of organ rejection in adult kidney, heart and liver transplants.

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