Advanced Magnetics gains 7%; Xoma slides; Seattle Genetics deal surfaces; Cephalon dips 2%

By Ronda Fears

Memphis, March 28 - Biotech stocks took a hit Tuesday in tandem with the broader markets as the Federal Reserve boosted interest rates by a quarter-point to 4.75% - the highest level in nearly five years. While some biotech traders said afternoon activity was marked with panic selling, most agreed that the move was no surprise.

Moreover, market sources at syndicate desks said the rate hike would likely spur financing activity that might have been stalled.

Indeed, another deal surfaced after Tuesday's close from Seattle Genetics, Inc., and Amylin Pharmaceuticals, Inc. was expected to price before Wednesday's open. Amylin shares (Nasdaq: AMLN) ended Tuesday off by 6 cents, or 0.13%, at $45.28 and were seen in after-hours activity higher by 4 cents, or 0.09%, at $45.32.

Another sellside market source said Isis Pharmaceuticals, Inc. appeared to be prime for another equity offering. The company recently filed a $200 million shelf, he noted, and the stock is up 64% this year. Isis shares (Nasdaq: ISIS) settled Tuesday off by a nickel, or 0.57%, at $8.66.

Many biotech names were whipped around during Tuesday's session, which traders attributed to the Fed rate increase and the reaction in the broader markets.

Cephalon rises, ends lower

Cephalon Corp. was higher in pre-market trading Tuesday after the Frazer, Pa., drug maker received a six-month extension to its marketing exclusivity for pediatric use of Provigil from the Food and Drug Administration, but by noon the stock was back in negative territory as short sellers dominated activity.

"Before the disappointment of Sparlon and the hit to the stock, Cephalon had a tremendous run upward. This was due to the settling with generic companies and a patent extension," said a sellside trader, who added that he expects Cephalon will soon dip low enough to spark renewed buying interest. "Nothing has changed, yet the stock took a hit due to Sparlon. Justified? Maybe, but I doubt it. They have a rich pipeline of drugs and Provigil is still growing."

The active ingredient in Provigil, a sleep disorder drug, is in Sparlon, the company's proposed attention deficit hyperactivity disorder drug for children and adolescents. The FDA last week swatted down Cephalon's Sparlon application.

Cephalon shares (Nasdaq: CEPH) lost $1.44 on Tuesday, or 2.35%, to close at $59.82.

Seattle Genetics lineup liked

Seattle Genetics, Inc. announced plans Tuesday for a follow-on offering of 7.3 million shares of common stock off the shelf via joint bookrunners Banc of America Securities LLC and CIBC World Markets.

In addition, Seattle Genetics has agreed to sell 1,129,015 shares to investment funds affiliated with Baker Brothers Investments, subject to stockholder approval, at a price equal to the offering price.

Bothell, Wash.-based Seattle Genetics develops monoclonal antibody-based therapies for the treatment of cancer and immunologic diseases.

"The list [of Seattle Genetics holders] is pretty impressive. Folks like that," said a sellside market source.

He noted that the Bill & Melinda Gates Foundation holds a 3.5 million share stake in the company, received from a donation last month from Cascade Investments LLC, which is Bill Gates' own private investment firm.

Seattle Genetics shares (Nasdaq: SGEN) closed off by 2 cents, or 0.35%, at $5.74 in the regular session but were seen diving in after-hours activity, losing 49 cents, or 8.54%, to $5.25.

The company has six ongoing clinical trials and plans to file an Investigational New Drug application at the FDA for its lead drug candidate SGN-35 - an anti-CD30 antibody-drug conjugate to treat hematologic malignancies - in mid-2006.

Advanced Magnetics at new high

Advanced Magnetics, Inc. has been the subject of increasing interest since the stock is up more than 200% since the beginning of the year, and shot up another 7% on Tuesday to strike another new 52-week high.

While analysts said interest is fueled by forthcoming news anticipated on its iron replacement drug, there also is louder chatter about it as a takeover target.

In a report Tuesday, Jefferies & Co. analyst Adam Walsh said his firm was "getting a lot of incoming calls from accounts on the name, asking us what AVM could be worth." He reasoned interest in part was driven by phase 3 data expected on the company's ferumoxytol opportunity by year-end or in early 2007 and the arrival of Brian Pereira as president of the company last fall.

Advanced Magnetics shares (Nasdaq: AVM) on Tuesday rose another $2.24, or 6.71%, to $35.62 - passing the previous 52-week high of $34 hit on Friday.

"Even after increasing our ferumoxytol estimates earlier this year, our numbers are conservative," Walsh said in his report. Thus, he added, "We believe there is upside to our numbers."

Advanced Magnetics a target

Advanced Magnetics remains a takeout candidate for companies such as Genzyme Corp. and Shire plc, Jefferies' Walsh said.

"While we believe that a takeout is unlikely until the phase 3 [ferumoxytol] data is announced (to ensure all safety hurdles are cleared), a fair takeout price could easily be in the $50 range, assuming 3x a conservative peak ferumoxytol sales estimate of $200 million," Walsh said.

Genzyme shares (Nasdaq: GENX) on Tuesday dropped $1.76, or 2.61%, to $65.75.

Shire shares in the United States (Nasdaq: SHPGY) lost 62 cents, or 1.32%, to $46.23.

Meanwhile, Walsh said he believes Advanced Magnetics has sufficient cash to launch ferumoxytol in 2008, with $50 million in cash and a cash burn rate currently of about $4 million per quarter.

Sequenom pockets $30 million

Sequenom, Inc. said it is has entered into agreements with some institutional investors for a $30 million private placement of shares.

The investors - ComVest Investment Partners II LLC, Pequot Private Equity Fund IV, LP and L BI Group, Inc. (an affiliate of Lehman Brothers) - all agreed to buy 54.5 million shares at 55 cents each, a 26.6% discount to the 75-cent closing stock price on Monday. The investors also will receive warrants for 32.7 million shares, exercisable at 70 cents each - a 6.6% discount to the same closing stock price.

Sequenom shares (Nasdaq: SQNM) on Tuesday dropped 7 cents, or 9.33%, to close at 68 cents.

"Their 70-cent warrants present a real nice opportunity. Of course, the dump after that is brutal," said a sellside trader. "Even so, these developments will generate significant buying interest. It looks like they probably have enough capital now for at least another year of operation."

San Diego-based Sequenom, which develops genetic analysis products used in prenatal testing, biomedical research, molecular medicine and agricultural applications, said proceeds would be used for working capital.

Sequenom also reported earnings Tuesday, posting a net loss in 2005 of $26.4 million, or 66 cents a share, improved from a net loss of $34.6 million, or 87 cents a share, in 2004 while revenues declined to $19.4 million from $22.4 million. The company projected a 25% increase in 2006 revenue.

Xoma whiplashes into decline

Xoma Ltd. had been extending a rise from last week, gaining by as much as 3.5% by around noon, but then took a dive with the broader markets as players got nervous, a sellside trader said.

"It wants to breakout to the upside through the $2.30 level, and could run to $2.65 short term," the sellsider said shortly before midday, noting that the stock hit a new 52- week high Friday of $2.25.

"Yesterday [Monday] and so far today, there has been a gravitational-like pull to this trading area for Xoma. Hopefully, this level will be a solid base from which it can move up from, but only time will tell."

Xoma shares (Nasdaq: XOMA) ended off by 5 cents, or 2.18%, at $2.24, after hitting an intraday high of $2.46.

After the close, the trader said, "With the price drop we might see our buyers jump back in. If not we will probably slip a few cents. So what; it has been moving in the right direction."

He continued, "Things are looking to the upside of neutral with the optimism around the April 11 Genentech report, let alone all the possible good news there may be toward the end of the year from Xoma and its partners."

Genentech is scheduled to report earnings and make a progress report on its business April 11.

Berkeley, Calif.-based Xoma and Genentech are partners on Raptiva - approved in the United States and the European Union to treat moderate-to-severe plaque psoriasis.

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