Acadia gains; Shire, Barr, New River up on settlement; Novavax rises; Vasogen off

By Ronda Fears

Memphis, Aug. 15 - As biotechs surged Tuesday on whole, traders said they were more encouraged than they have been for months that the sector may be poised for a true rebound.

"I have the feeling that we are seeing some willingness to take on acceptable risk, if that makes sense," said a sellside trader.

"Well, I think that after some time to sit back and look at what's been happening over the summer with the broader markets, the biotech sector itself - including the shocks we've had from the FDA [Food and Drug Administration] taking a more conservative position in drug approvals - then it is sinking in that there is inherent risk in this sector that is above and beyond the Nasdaq."

"Having had a few bounces in the last few weeks, it seems logical that after this month's dips, we have hit the bottom," he added. "So, if you have come to terms with the risk angle, then you can feel pretty comfortable with buying right now. I think that's what we are seeing."

Acadia gains over 15%

One name the trader specifically mentioned in regard to buying despite some looming risk was Acadia Pharmaceuticals Inc. after Bank of America started coverage with a buy rating, citing the strength of its pipeline, at a price target of $10.

Acadia shares (Nasdaq: ACAD) rose 83 cents, or 15.12%, to $6.32.

But, he said the spike in the stock was too tempting for profit-takers.

Indeed, for one buysider it was too little too late, although he noted that there have been a string of Wall Street shops plugging Acadia in recent months, but with a sharply declining price target.

"This stock would have to increase three and a half times its current price just to get back to where it was five months ago. That would be a 350% gain! So how is that ever going to happen? Think about it. Their pipeline is several years away from a viable product, if at all," he said.

"Their cash register will be running empty by the middle of [the] year after next [2008], so you can safely figure there is a lot more dilution of the stock down the road. Years from now, if and when this company shows real promise, would be the time to get into this stock. It's far better to take a long position by entering it in the sweet spot. So what if you lose a little from missing the bottom. That's a lot better than tying up your money for a long time in a losing position."

Acadia focuses on central nervous system disorders, including schizophrenia, insomnia and Parkinson's disease, but also has programs targeting glaucoma, endocrinology, sleep, neuropsychiatry and obesity.

Novavax downside limited

Another big gainer, Novavax, Inc., was in reaction to an upgrade on the stock Tuesday by RBC Capital Markets to sector perform from underperform on limited downside risk despite a recent delay in trials for its avian flu vaccine and the possible need to tap the markets for funds as early as next year.

"It looks as if Novavax has got a rocky road ahead, but there is definitely opportunity here," another sellside trader said. "I would be thinking about buying on the dips and selling on days like today, for the intermediate term."

Novavax shares (Nasdaq: NVAX) gained 37 cents on the day, or 13.03%, to settle at $3.21.

RBC analyst Ken Trbovich noted in a report Tuesday that Novavax has $78.6 million in cash on its balance sheet but that could dip below $20 million by the end of 2007 and could leave the company in need of additional funds next year. He noted, however, that Novavax's cash burn has doubled over the past year as management ramps its efforts to commercialize its vaccine technology. In 2007 the company also may redeem its $22 million in convertible debt.

In March, Novavax raised $38 million from direct placement of 5.2 million shares at $7.30 each - a 12% discount to the then-current market price - to a group of institutional investors.

Novavax is a pharmaceutical company based in Malvern, Pa.

New River up as Shire settles

British drug maker Shire plc and Barr Pharmaceuticals, Inc. announced a settlement to their patent dispute over a generic version of Shire's attention deficit hyperactivity disorder drug Adderall XR, and both stocks gained, as well as New River Pharmaceuticals, Inc.

Under the settlement agreement, Barr will hold off on selling a generic version until April 1, 2009, unless another generic drug company launches a version sooner.

Meanwhile, Shire and New River are working on NRP104, which is intended to be more difficult to abuse than other ADHD drugs, including Adderall XR and it uses CarrierWave technology, a type of controlled release drug system developed by New River.

The FDA is expected to make a decision about NRP104 by Oct. 6.

"By that time [April 2009] Shire must switch all Adderall XR users to NRP104. It's a big incentive for both Shire and New River to get NRP104 as the number one ADHD treatment within two years," said a buyside analyst in Boston.

"Shire's CEO Matt Emmens also reiterated that NRP104 will replace Adderall XR as the leading ADHD treatment. That's if it gets Schedule 2 [drug classification] approval. If it gets Schedule 3 or 4 then it's a $2 billion blockbuster."

New River shares (NRPH) added $3.17, or 13.76%, to $26.20.

Shire shares (Nasdaq: SHPGY) rose $1.48, or 3.01%, to $50.71.

Barr shares (NYSE: BRL) added $3.52, or 6.73%, to $55.84.

Vasogen falls on big sale

To the downside, Canadian biotech Vasogen, Inc. took another hit on selling pressure, which traders traced to facing possible delisting on the Nasdaq as well as further dilution. One trader said it was a big sell-out in the shares that contributed the most to Tuesday's slide.

Vasogen shares (Nasdaq: VSGN) lost 4 cents on the day, or 9.3%, to close at 39 cents.

Last week, Mississauga, Ont.-based Vasogen said it has received a letter from the Nasdaq Stock Market stating that for the last 30 consecutive business days its stock price has closed below the minimum bid price of $1.00 per share requirement for continued listing.

Also, the company announced it has filed an amended and restated prospectus with the Ontario Securities Commission and the U.S. Securities and Exchange Commission to increase by 30 million the number of common shares for possible sale. The shares may be issued in connection with the senior convertible notes issued in October 2005 by its subsidiary Vasogen Ireland Ltd. As of Aug. 1, the outstanding amount owed on the notes was $14.8 million.

"I do see hope in this technology but it's no cake walk ahead," the trader said.

"Vasogen is learning, I hope they have learnt from their mistakes, i.e., to tell a story you should tell not just what happened but the bigger question - WHY IT HAPPENED?"

Vasogen focuses on technologies for the chronic inflammation underlying cardiovascular and neurological disease. Its products include Celacade, which is in phase 3 clinical trials for chronic heart failure and peripheral arterial disease, and VP025 for neuro-inflammatory disorders such as Parkinson's and Alzheimer's.

The company also is developing a new class of drugs based on synthetic three-dimensional phospholipid-based structures to regulate cytokine levels and control inflammation.

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