Vical top pick in bird flu flock; Noven sinks on profit taking; NitroMed dives, Myriad higher

By Ronda Fears

Memphis, May 2 - Biotech stocks continued to lose ground Tuesday, but some players were thinking the end may be in sight.

"The biotech sector has been feeling bearish for awhile but I am looking for capitulation, which might be today, to re-enter," on the downdraft, one trader on the buyside commented Tuesday around midday. "When everyone thinks it's over, then the real fun will begin."

Bucking the downward trend already were influenza plays, particularly regarding the dreaded H5N1 avian flu. It was a common thread among trader remarks Tuesday, many noting promotionals that have begun for "Fatal Contact: Bird Flu in America," an ABC made-for-television movie, that airs May 9.

"Mark my words, the U.S. market will panic when the ABC movie is on next Tuesday. I picked up several [bird flu stocks] and will sell next Wednesday after the movie and all the stupid idiots panic and buy up all the bird flu stocks," said a buyside trader. "This will be the easiest trade ever, you'll see."

He said he likely will find a low spot after the furor dies out to buy back into the niche biotech group, as vaccines are a smart play right now.

"Even if a vaccine is produced, there is still a huge need for antivirals. The vaccine will not be anywhere near 100% effective (most flu shots are about 70% effective as I remember) so people will still get sick," he said. "And with a virus like this, mutations could move the virus away from the effective zone."

Vical a vital vaccine play

Vical, Inc. was far and away the biggest winner in the bird flu flock Tuesday, after announcing a complete success in the trial for its H5N1 vaccine in rodents, with a 100% protection, and posting first-quarter results that sparked heavy short covering. The stock shot up more than 30% to a new 52-week high on heavy volume.

"This is one that is out front, at least with some fresh headlines, so it is an easy pick for the masses," the above-mentioned sellsider said. "Vical is up over 35% since crossing above its squeeze trigger price and there is still a lot that needs to be covered, so you just hang on to your hat."

San Diego-based Vical said its flu vaccine protects mice and ferrets against the feared H5N1, plus could be a potential universal flu vaccine because it targets parts of the virus that all flu strains have.

Vical shares (Nasdaq: VICL) traded up to $7.51 before easing back to close out the day higher by $1.69, or 30.73%, at $7.19, surpassing the previous high of $6.98 struck on Oct. 11. Some 11.8 million shares traded, versus the norm of 229,995 shares.

"A vaccine that provides cross-protection against more than one strain of flu is important for addressing a pandemic flu threat because it is likely that the H5N1 virus could mutate before it becomes transmissible from human to human," said Richard Webby of St. Jude Children's Research Hospital in Memphis, who tested the Vical vaccine.

"Achieving cross-protection is the ultimate goal in flu vaccines, and the current studies provide evidence that such a goal may be feasible using a DNA vaccine targeting conserved influenza virus proteins and formulated with our proprietary Vaxfectin adjuvant."

For first quarter, Vical also said Tuesday that that its net loss was divided in half at $4.5 million, or 16 cents a share, compared with a net loss of $7.6 million, or 32 cents a share, as revenues more than doubled to $5.6 million from $2.7 million. In addition to its work on a flu medication, a three-component DNA based vaccine, Vical has an Ebola vaccine in the works, an angiogenesis product candidate and is working on DNA vaccines for infectious diseases and cancers.

NitroMed shares plunge 31%

At the other end of the spectrum, NitroMed, Inc. hit a new 52-week low with a drop of more than 30% amid a stampede Tuesday to get out after the company posted a wider-than-anticipated first-quarter net loss. There have been several blows to the name in recent months, and many took the company's full-year sales at half analysts' expectations, on top of the quarterly results, to be the last straw.

"NitroDeath. NitroPoop. NitroCrap. NitroMed," quipped one sellside market source.

NitroMed shares (Nasdaq: NTMD) fell $2.65, or 30.78%, to $5.96, eclipsing the previous low of $7.00 hit on April 17. Some 4.5 million shares traded, versus the norm of 700,736 shares.

BiDil, the company's heart medication targeted to black patients, continues to show less-than-stellar sales, and it is NitroMed's only revenue draw right now. That has been a sore spot for many players and manifest into a festering wound with the first-quarter net loss swelling to $25.9 million, or 75 cents a share, compared with a net loss of $19.6 million, or 65 cents a share, a year prior, while revenues grew to $2.32 million from $400,000.

Full-year sales were forecast by the company at $20 million, less than half of the $44.4 million Thomson First Call analyst consensus.

Recent prescription data suggest that BiDil "is gaining traction," Argeris "Jerry" Karabelas, NitroMed's chairman and interim CEO of Lexington, Mass.-based NitroMed, said in the first-quarter conference call.

Reluctance by many managed-care organizations to provide BiDil has been a barrier to its entrance to the market in July of 2005, along with a contract sales force. NitroMed is now hiring its own sales force and expects the transition to be completed by the end of May.

Noven shares slightly better

On the heels of a pleasing earnings report, Noven Pharmaceuticals, Inc. shares hovered around the unchanged line Tuesday, but traders attributed activity in the name to profit taking after a run-up in the stock this year. The shares settled just slightly higher on light volume.

"My take is that there was some profit taking after the recent run up. The Street is also unlikely to be overjoyed about [executive] compensations, and that may have hit a nerve," said another sellside trader. "I think this is a hold and we are heading into the $20s, despite this."

Noven shares (Nasdaq: NOVN) closed up by 6 cents, or 0.32%, at $18.55. The stock traded in a narrow band of $18.36 to $18.65 with 125,162 shares changing hands versus the norm of 191,465 shares.

Jefferies & Co. analyst David Windley maintained a hold rating on the stock in a report Tuesday with a $17.50 price target, noting that as the market's attention stays focused on Daytrana's launch, Noven's slightly better first-quarter results failed to generate much interest. Noven is partners with Shire Pharmaceuticals plc on the attention deficit hyperactivity disorder drug Daytrana, a transdermal patch.

"Lack of information around late-stage pipeline keeps us on the sidelines," Windley said in his report. "Management has not provided any guidance on Daytrana manufacturing revenues, and we believe that is the single biggest source of upside."

Late Monday, Miami-based Noven reported a first-quarter profit of $500,000, or 2 cents a share, up from $200,000, or 1 cent a share, a year before as revenue dipped to $10.19 million from $11.72 million.

Noven said the revenue decline was primarily due to the timing of shipments of Vivelle-Dot - an estrogen patch to relieve menopause symptoms and prevent postmenopausal osteoporosis - to Novogyne. The company noted Novogyne Pharmaceuticals, a women's health products company it owns jointly with Novartis Pharmaceuticals Corp., reported a $15.1 million profit in the first quarter - an 88% increase.

"The company is still chilly on its new partnerships. They are spending money on new trials but forbidden by its partners to talk about them. I think they have $50 million now in the bank from Daytrana, which can't hurt," said a buyside source in Boston.

"But to get into the $20s those other collaborations have to be talked about and factored into 2007 earnings and revenues. The HRT [hormone replacement therapy] business seems to be healthy and will continue to generate positive cash flow until other projects come along. I would say buy on any dips."

Myriad Genetics gains 6%

Salt Lake City-based Myriad Genetics Inc. was another biotech bucking the southerly trend in the sector Tuesday.

Myriad Genetics reported its fiscal third-quarter net loss shrank to $9.6 million, or 24 cents a share, from $10 million, or 32 cents a share, a year earlier as revenue increased to $29.8 million from $20 million. The EPS figure was smack on the analysts' forecast, and revenues were well ahead of the Thomson First Call consensus looking for $28.2 million.

"It's a nice beginning," said a buyside market source. "So far, so good."

Myriad Genetics shares (Nasdaq: MYGN) added $1.54 on the day, or 6.08%, to end at $26.86.

Some players were expecting a bigger pop, but a sellside trader explained, "The problem is that the gap to upside wasn't filled, then it turned and formed another gap to the downside, thus creating strong resistance at $26. I guess the solution would be upgrades followed by an upside breakout so a new, larger gap created. But the stock has out-performed the indices lately when money has been coming out of many of other biotechs. Patience here will pay off."

The company said increased sales efforts resulted in better acceptance of its products by the medical community, accompanied by increased patient demand for predictive medicine testing.

"Additionally, we are aggressively pursuing an exciting therapeutic opportunity to develop novel, first-in-class drugs for the treatment of Alzheimer's disease, metastatic brain cancer and AIDS," said Peter Meldrum, chief executive of Myriad Genetics, in a news release.

Clinical trials in progress during the third quarter consisted of a new phase 1 clinical trial, announced separately Tuesday, of MPC-0920 for the oral treatment of thrombosis; a phase 3 trial of Flurizan in Alzheimer's disease; a 12-month follow-on to the completed phase 2 trial of Flurizan in Alzheimer's disease; a phase 2b trial of MPC-7869 in prostate cancer; two phase 1 trials of Azixa, also referred to as MPC-6827, in solid tumors and brain metastases, respectively; and a phase 1 trial of MPC-2130 in blood cancers and metastatic tumors.

deCode Genetics plunges 9%

In a similar line of biotech focus, deCode Genetics, Inc. took a big hit Tuesday after the Iceland-based company posted disappointing results and what many players interpreted as a delay in trials for its drug being tested to prevent heart attacks.

deCode shares lost 71 cents, or 9.29%, to close at $6.93 (Nasdaq: DCDG).

deCode Genetics reported after Monday's close a widened first-quarter net loss of $20.3 million, or 37 cents per diluted share, compared with $16.9 million, or 32 cents per diluted share, a year before, while revenue rose to $10.1 million from $9.5 million. At March 31, the company said it had $15.9 million in deferred revenue that will be recognized in future reporting periods.

At the close of the quarter, the company had $140.3 million in cash and investments, compared with $155.6 million at year-end 2005.

Kari Stefansson, chief executive of deCode, said the company expects the coming weeks and months to be an exciting period of growth. By midyear, he said the company plans to begin enrollment in a phase 3 trial for DG031 for the prevention of heart attack, start a phase 2 program for DG041 for peripheral artery disease and be well on the way to filing an Investigational New Drug application for DG051 - a follow-on compound in heart attack.

"The continuing delay in starting the phase 3 trial for DG031 was the big disappointment. It just keeps getting pushed farther back," said a buysider. "This is, what, the fifth delay? 'Second quarter' becomes 'mid-year,' which is read as 'third quarter.' Something doesn't smell right and the market has a sensitive nose."

A sellside trader said the interpretation that the time line on the DG031 trial was delayed was a mistake, though. "These are consistent, although some may wonder if 'mid-year' implies a slip. It doesn't though. The second quarter ends at precisely mid-year."

"They hit the consensus EPS estimate if you examine the two-cent adjustment for FAS-123. So they did hit their EPS number exactly right. Compare this to last quarter where they missed by 33%," the trader continued.

"Phase 3 for DG031 is on schedule, at least according to all public information released. Saying they are going to begin enrollment in second quarter and that it will begin by mid-year, is the same thing. Once people realize this, they will come back in. Last quarter sucked, because they missed and they had not started phase 3. This quarter they improved their management ability, arriving at the consensus EPS estimate, and phase 3 is on schedule. There is no reason for the drop."

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