Rigel Pharma tromped; Oxigene, Biopure launch follow-on deals; Lexicon, LabCorp, Quigley higher

By Ronda Fears

Nashville, Dec. 1 - Deal flow was showing signs of a fairly busy final month of the year, although year-to-date figures for biotech fund raising efforts have not been impressive. In the latest deal to emerge, Oxigene, Inc. launched a small follow-on offering.

Waltham, Mass.-based Oxigene, which concentrates on treatments for cancer and certain eye diseases, is selling 6 million shares off the shelf. The stock Thursday closed down by 8 cents, or 1.68%, at $4.68.

There was another smaller deal on the tape as well. Biopure Corp. launched a follow-on offering of 8.8 million shares of common stock and warrants for 8.8 million additional shares. Cambridge, Mass.-based Biopure develops pharmaceuticals referred to as oxygen therapeutics that are intravenously administered to deliver oxygen to the body's tissues. On Thursday, the stock ended off 2 cents, or 2%, at $0.98.

On whole, most of the biotech sector was higher Thursday, but Rigel Pharmaceuticals, Inc. was devastated by disappointing phase 2 results for its hay fever drug and the stock was pummeled.

The Quigley Corp. and Laboratory Corp. of America Holdings were both higher on news related to the avian flu, and traders said several niche companies working on vaccines for the avian flu were higher on takeover chatter. Regarding the latter, specifically mentioned were Vical, Inc., NanoViricides, Inc. and Novavax, Inc.

"Takeover rumors are rampant on anything that looks like a bird flu play," one sellside trader said. "Bird flu news will be big next week is what is circulating, so the feeling is to get in while it's still cheap."

Rigel shares plunge 63.5%

Rigel Pharmaceuticals, Inc. was pounded Thursday after the company reported that phase 2 clinical trial data showed its nasal spray R112 to be largely ineffective in treating hay fever when compared with a placebo and another allergy drug, Beconase AQ, which is marketed by GlaxoSmithKline plc.

The stock fell $13.91, or 63.46%, to $8.01 and was lower still in after-hours trading. Rigel shares were seen after the close going lower by another 2 cents, or 0.25%, at $7.99. Volume was off the charts, too, with 22.1 million shares changing hands versus the norm of just 273,172 shares.

Onlookers said the market reaction, which followed sharps gains in several previous sessions, was way overdone as Rigel noted the new data appears to contradict earlier clinical data on the drug.

"We are disappointed in today's results," said Rigel chief executive James Gower. "These results are surprising given that the earlier phase 2 'Park' study of R112 demonstrated a statistically significant reduction in the symptoms associated with allergies."

JMP Securities analyst Adam Cutler cut Rigel shares from market outperform to market perform, surmising that the company would likely discontinue development of R112 in light of the phase 2 study results.

"We viewed R112 as the biggest value driver for Rigel. With R112 out of the picture, we believe that Rigel's share price is likely to drop to the $10-12 range," Cutler said, adding that is analysis of the company's pipeline yields a value of an approximate $8 per share. "We note that Rigel currently has $5.50 per share in cash. We believe that the stock should be bought if it trades near the value of the company's cash position ($6-7) per share."

Rigel buying limited on drop

Even with the dip, however, buysiders were extremely skeptical of the Rigel story as the role of the new hay fever drug in the company's pipeline is now hazy.

"I think they will still be progressing with phase 2 trials, though this is obviously a setback. But a 60% drop is absurd. What a hair cut!" said one buyside market source. "The problem is, the master manipulators will be all over this. If no good news is out, they will push this down another $1 to $2 easily. Biotech is getting the crap kicked out of them. I am staying away."

Traders said there was gridlock in the bid-and-ask spread for Rigel shares, suggesting "not a lot of real buyers stepping in" even with the severe drop. There were a few taking advantage of it, however, thinking that once the news was absorbed it would be seen as an overreaction.

"Rigel has a high profile and collaborations with Big Pharma like Pfizer, J&J, Novartis, Merck and Serono," said one trader at a small brokerage firm in Texas. "This is too strong a company and too solid for complete destruction in my opinion."

He said institutional investors and mutual funds hold some 79% of Rigel shares and 89% of the float.

"The near future of the stock price is in their hands. Some may have sold out today but there's no reason for this stock to tumble tomorrow," he said. "The bad news is out, margined longs sold and the fear is almost gone. What's left? Investors in a company that's worth much more than $8.00 per share."

South San Francisco-based Rigel, which posted a 2004 net loss of $56 million, also develops drugs to treat rheumatoid arthritis, asthma, cancer and hepatitis C.

LabCorp, Quigley higher

With separate news regarding work on avian flu-related treatments, LabCorp and Quigley were higher Thursday. LabCorp gained 1% while Quigley climbed more than 18% before easing back late in the day.

LabCorp announced that it has come up with a real-time flu test that could speed up diagnoses. The polymerase chain reaction test is for type A flu strains, including the avian flu H5N1 strain. In addition, the company said it has a test for type B flu and the respiratory syncytial virus. The tests can be performed directly on respiratory samples or on culture viral isolates.

"These rapid molecular tests detect the presence of common influenzas and other respiratory pathogens, while providing specific typing information for strains such as the H5N1 avian flu strain," said LabCorp chief scientific officer Myla Lai-Goldman in a statement. "As flu season approaches and concerns about avian flu mount, the level of detailed information these tests provide will be useful for the surveillance and monitoring of influenza activity. Faster diagnosis also leads to appropriate and cost effective antiviral treatment sooner, and brings peace of mind to physicians and their patients by expeditiously identifying the cause."

LabCorp shares gained 47 cents, or 0.91%, to close at $52.36.

Quigley announced that its QR-441 compound sprayed on respiratory mask air filters has been tested against the avian flu virus H5N1 as well as the human flu virus H3N2 and was found to prevent up to 99% of the viruses whereas the masks not treated with QR-441 had the ability to prevent up to 90% of the viruses passing through. More important and significant findings show that the QR-441 compound proved to deactivate the live viruses passing through these filters, the company said.

Quigley shares traded as high as $16.94, which would have eclipsed the 52-week high of $16.82 for the stock, before retracing to close up by $1.86, or 13.19%, at $15.96.

Invitrogen issues up on suit

Invitrogen Corp. announced a favorable decision in its patent infringement lawsuit against Clontech Laboratories involving technology that helps improve the yield and quality of DNA used in research. The news sent the stock higher and convertible holders covering short positions.

The stock gained $1.51 on the day, or 2.27%, to close at $68.16. The Invitrogen convertibles were active, as well, with the newer 3.25% bonds due 2025 seen up 2 points outright at 96.375, according to one sellside market source.

A source at a special situation fund said the story was looking more appealing in the last couple of months, noting that Invitrogen appears to have "a large amount of cash, and pretty far off debt maturities."

Lexicon closes up 5.5%

Lexicon Genetics, Inc. shot up as much as 12.5% or more Thursday on news of an expanded three-year research agreement with Big Biotech name Genentech, Inc., but the stock eased back to end the day just 5.5% higher.

The Woodlands, Texas-based company said the new pact with Genentech includes the advanced research, development and commercialization of new biologic drugs. The company will receive a total of $25 million in cash upfront plus milestone payments, research funding and royalties or profit sharing funds.

Under the expanded alliance, the company will conduct advanced research on a broad subset of targets included in Genentech's Secreted Protein Discovery Initiative program and validated using the company's proprietary gene knockout technology.

The stock closed Thursday up by 21 cents, or 5.56%, at $3.99.

Par Pharma shares rise 1%

Spring Valley, N.Y.-based Par Pharmaceutical Cos. Inc., formerly Pharmaceutical Resources, Inc., said Thursday it was issued tentative approval for a generic version of Pfizer's Dostinex - a treatment for a hormone disorder that can cause infertility in women and impotence in men.

Par Pharma said it expects to launch its cabergoline tablets once the patent owned by Pfizer expires on Dec. 29. Dostinex's annual U.S. sales are more than $80 million, according to Par.

The drug treats disorders involving excessive levels of the hormone prolactin in the blood. Too much of this hormone can lead to infertility or changes in menstruation in women, sometimes causing women who are not pregnant to begin producing breast milk, according to the National Institutes of Health. Men commonly see a gradual loss of sexual function.

Par Pharma shares Thursday closed higher by 24 cents, or 0.9%, at $16.85. The company's 2.875% convertible bonds due 2010 are usually active and were seen at 81.5 on Wednesday, but traders did not see the paper in play on Thursday.

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