Advancis sale of Keflex stumbles; Nuvelo spikes on Bayer pact; buyers snap up Nektar, MannKind

By Ronda Fears

Nashville, Jan. 5 - Buyers dominated in the biotech sector Thursday, although there were a couple of big decliners like Advancis Pharmaceutical Corp. and Theravance, Inc. NeoPharm, Inc. even saw a nice gain after fetching about $35 million in a spot sale that was only slightly discounted from the close on Wednesday.

"There really wasn't a lot of news on the wires," said a sellside biotech stock trader. "Biotechs are just warming up. I think it's going to be a good year."

NeoPharm sold 3.5 million shares of stock in a spot sale priced at $10.20 each, discounted from Wednesday's closing price of $10.89. Waukegan, Ill.-based NeoPharm said it would use proceeds from the deal to fund, among other things, clinical trials of its lead product candidates, cintredekin besudotox - a tumor-targeting drug that selects tumor cells while ignoring healthy ones that is being tested on brain tumors - and Liposomal Paclitaxel Easy-To-Use - a chemotherapy for breast, lung and prostate cancer.

"The street knows that this stock will be worth far north of $10.20 per share, and that is the main reason that it's up today," the sellsider said, adding that the market was not overly concerned about the dilution. "I bought more today. I am not saying that the price will not go down from here, but I am saying that the stock will be trading at a much, much higher price than it is today in 2006."

Lots of big movers Thursday, though, had no readily visible catalyst, such as Anadys Pharmaceuticals Inc. and Pozen Inc. Nevertheless, buyers were pushing biotech stocks higher in a big way. San Diego-based Anadys, which is working on hepatitis C and hepatitis B drugs in collaboration with Novartis AG, rose 82 cents, or 9.59%, to $9.37. Chapel Hill, N.C.-based Pozen, focused on pain drugs like its Trexima that is being developed in collaboration with GlaxoSmithKline plc for migraines, shot up $1.87, or 17.33%, to $12.86.

That said, Theravance was seeing a huge sell-off due to a downgrade in the stock by Credit Suisse First Boston, but late in the day Merrill Lynch put out a report saying the decline was a buying opportunity. At issue are differing opinions about Theravance's antibiotic Telavancin for staph infections. The CSFB report pushed Theravance shares lower by 92 cents, or 4.29%, to $20.51.

Also noteworthy, another sellside trader mentioned that it seems Salix Pharmaceuticals Ltd. is the first biotech to step-up options expensing due to a new accounting rule that takes effect this year. Salix announced Thursday it had approved the acceleration of the vesting of all outstanding stock options to head off expenses associated with accounting rule changes slated for fiscal 2006. As a result, Salix anticipates a stock-based compensation expense of about $500,000 will be included in its fourth-quarter 2005 results of operations, reducing fully diluted net earnings per share by about 1 cent for 2005. Morrisville, N.C.-based Salix concentrates on drugs to treat gastrointestinal diseases.

Nektar up ahead of Exubera

Nektar Therapeutics rose 5% also without news Thursday, but traders said there was some positioning ahead of the anticipated approval for its inhaled insulin Exubera in Europe next week.

The stock gained 83 cents on the day, or 4.93%, to $17.65.

Nektar, along with Big Pharma partners Pfizer Inc. and French drug giant Sanofi-Aventis, is expected to get approval for Exubera toward the end of next week, one buyside market source said.

"I think European approval and the Single Market Authorization order containing all the information about labeling, price parameters, etc., will come next Wednesday after the EU Commission meeting, then the FDA approval comes very soon after," the buysider said. "It's going to be an interesting fortnight."

Another buysider, though, was less enthusiastic.

"It was a real nice day, and I do not mean to take anything away from that, but, there was a great deal of selling into the upward move. For the share volume that traded the increase in price was really not that large," the unimpressed buysider said.

Some 3 million shares of Nektar shares changed hands Thursday, compared with the three-month running average of 1million shares.

"Additional rounds of selling will bring the price down again. I wouldn't be surprised to find the short volume increased by a million shares over the past two days," he continued. "Of course, this is all fuel for the fire to come when the shorts will get their toes toasted, those who are covered. The ball will not get hit out of the park until the FDA speaks. But the EU news should be good for a double or triple."

MannKind buyers exuberant

MannKind Corp., a much smaller player in the inhaled insulin race, was sharply higher on Thursday, too, which a sellside trader attributed to the Nektar move and hopes that any advance in Exubera will trickle down to MannKind's Technosphere insulin system.

MannKind shares on Thursday added $1.36, or 11.95%, to close at $12.74.

"Since both [MannKind and Nektar] are up today I would guess it's Exubera approval related," the trader said. "It will mean more for MannKind appreciation than Nektar. Of course, there are clinical results coming from MannKind any time now. Oh, and don't forget the partner that will probably come soon with a slightly different split than Nektar has."

The trader said he has heard several big players mentioned as potential partners for MannKind with regard to Technospere, such as Eli Lilly & Co., Johnson & Johnson, Merck & Co. and Bristol-Myers Squibb Co., with [the] time frame running anywhere from six months to a year or more. But, he said he has ruled out Lilly since it is working with Alkermes Inc. on another competing inhaled insulin product, AIR Insulin.

"Conventional wisdom says the first product on the market has a big advantage, but then there is a devil's advocate argument that the second runners move ahead of them very quickly, like the Japanese auto industry," the trader said.

MannKind is widely expected to seek FDA approval for Technosphere in mid-2008. It has started a late-stage clinical trial in Europe and analysts expect it will begin a two-year safety trial in the United States soon.

Nuvelo skyrockets by 40%

Nuvelo, Inc. shares spiked more than 40% on Thursday after the company announced it had signed a deal potentially worth close to $500 million with Bayer AG to commercialize its new blood-clot dissolving drug alfimeprase, which is presently in phase 3 trials.

The stock added $3.66 on the day, or 40.62%, to end at $12.67 and continued to climb in after-hours activity, with the stock seen at 6:14 p.m. ET up by another 35 cents, or 2.76%, at $13.02.

"With today's rise, Nuvelo shares are still well below most of the lowest of the analyst's 12-month estimates, which of course were all made before the news," said a buyside market source.

He speculated that short covering contributed largely to the spike in Nuvelo's gain Thursday, noting heavy volume in the stock with some 10 million shares changing hands versus the norm of 304,244 shares. Also, he said speculation that Nuvelo may be a takeover target by the likes of Bayer is "probably a big driving force."

Under the Bayer deal, Nuvelo could receive up to $385 million in milestone payments. The company said it expects to receive $90 million this year, including a $50 million upfront payment.

A focal point of the deal by biotech players was that Nuvelo will retain all U.S. commercial rights to alfimeprase and Bayer, which will market the drug overseas, will pay Nuvelo up to 37.5% in royalties on future sales. In addition, Bayer will pick up 40% of global development costs, while Nuvelo will shoulder the remaining 60%. Nuvelo plans to hire its own sales force to market the drug in the United States.

Advancis plunges over 7%

Deals are at risk, however, as demonstrated by the slide in Advancis on Thursday after the company announced that the sale of its Keflex brand of the antibiotic cephalexin to a private company was not completed by Dec. 31 as earlier expected.

Advancis shares dropped a dime, or 7.14%, to $1.30 on the news.

Germantown, Md.-based Advancis said, though, that a deal is not entirely dead. Under certain circumstances, the transaction may still take place on or before Feb. 28, the company said. Advancis noted, too, that the private company involved had paid it a non-refundable deposit of $1 million. Negotiations with this company stopped Advancis from seeking additional partners or potential buyers, so players expected that the company would do so if the talks entirely break down.

A buyside trader, noting very small volume, said, "I am not worried. Basically, the news indicates that the company does not need the money from Keflex."

Advancis fan buys on dip

In fact, the buysider said he was loading up Advancis shares on the drop.

"There are a couple of very positive points to the story. They get to keep a non-refundable $1 million payment and there is still a slight chance that the other party can still buy the Keflex brand by February, although that now seems unlikely," he said.

"On another positive point, they say they want to have a Keflex pulsys product and are seeking partners for this venture. Probably, the two most important points are that they finished 2005 with about $27 million in cash and that should be more than enough to finish the phase 3 amoxicillin pulsys trial and other planned operations through all of 2006 and into early 2007. And the best part of the news release is that they stated that they were slightly ahead of schedule in the current phase 3 trial with about 115 patients already enrolled.

"They still will be getting some very nice revenues from Keflex throughout 2006 and into 2007 and more importantly, they have all the money they need to finish this current pivotal phase 3 trial and other planned operations through early 2007 without any need whatsoever for any dilution; that's a huge plus in my book."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.