New River rises 61.5%, Shire up 16% on ADHD drug nod; Coley eyed; NeoPharm higher by 20%

By Ronda Fears

Memphis, Oct. 9 - Biotech stocks were higher Monday on a positive news stream in the sector, headed up by an approvable letter for New River Pharmaceuticals, Inc. and Shire plc on the new pediatric attention deficit hyperactivity disorder drug NRP104, although there are still questions remaining about its classification.

"It was very thin today, but for what it's worth it was a nice day," said a biotech equity trader at one of the bulge bracket firms, noting that the bond market was closed Monday to observe Columbus Day, and many stock players took a long weekend as well.

Elsewhere, NeoPharm, Inc. was sharply higher as well on a presentation on its cancer drug at an industry conference.

Crucell NV also was of note on news it has secured a $16.2 million U.S. government contract to design and develop an HIV vaccine. The contract was from the National Institute of Allergy and Infectious Diseases, which is part of the U.S. National Institutes of Health, to support a collaborative program between the Netherlands-based Crucell, the Beth Israel Deaconess Medical Center at Harvard Medical School and Wilmington, Mass.-based Charles River Laboratories, Inc.

Crucell shares (Nasdaq: CRXL) gained 60 cents on the day, or 2.59%, to settle at $23.77. Charles River Labs shares (Nasdaq: CRL) edged up by 20 cents, or 0.46%, to $44.05.

New River hits new high

New River and Shire both hit new 52-week highs on the NRP104 news, but New River stole the show with a more than 62.5% spike amid some speculation that Shire might be looking to buy the U.S.-based biotech.

"With New River getting 50% of the $1.3 billion sale of the drug, its current $1.6 billion market cap ain't out of whack, not to mention there are a few other drugs in the pipeline," said a sellside trader.

"I speculated Shire will just buy out New River."

New River shares (Nasdaq: NRPH) shot up $16.11 on the day, or 61.47%, to close the session at $42.32, which was considerably off the intraday high of $44.72. Volume in the stock was "off the charts," as the trader put it, with 11.8 million shares changing hands versus the norm of 457,550 shares. The stock passed the previous high of $35.60 hit in April.

The companies said the FDA issued an approvable letter, meaning the marketing application for the drug is in order but a few issues need to be addressed before final approval. No additional studies will be required, however.

NRP104 uses New River's CarrierWave technology, a controlled release system, designed to make the drug more difficult to abuse than other ADHD treatments.

At issue is the classification of the drug by the U.S. Drug Enforcement Administration. The FDA recommended that the drug be classified as Schedule II, meaning the drug has a high potential for abuse but has a medical use.

If approved under Schedule II, New River will receive 25% of the operating profits from NRP104 during the first two years of commercial availability, followed by 50% per year thereafter. If it were to get a classification of Schedule III within three years of approval, New River is entitled to a milestone payment of $100 million to $300 million.

Shire surge less robust

Shire said it expects to launch NRP104 in the first half of 2007. It is meant to replace Shire's ADHD treatment Adderall XR eventually, but a less stringent drug classification would make marketing easier. Yet, analysts are skeptical that it will get a lighter regulated label, and Shire's assent was strained but still hit a new high.

Shire shares (Nasdaq: SHPGY) gained $7.76, or 15.71%, to end the day at $57.16, sailing past the previous 52-week high of $52.26 that was reached Aug. 30.

"Shire is looking to strengthen its mature ADHD franchise with NRP104. However, its enthusiasm to switch from Adderall XR to NRP104 is largely dependent on favorable scheduling," said Jefferies & Co. analyst Lucinda Seagrove in Europe. She added, the "best case scenario is Schedule IV, yet clinical data and the FDA's proposal, point more to a less marketing friendly Schedule II."

NeoPharm buyers holding

Traders said NeoPharm, Inc. was seeing a surge in buyers after it announced that its Cintredekin Besudotox will be highlighted in presentations at the Congress of Neurological Surgeons annual meeting on Monday and again Wednesday.

NeoPharm shares (Nasdaq: NEOL) rose $1.12 on the day, or 20%, to $6.72.

While a fair amount of the rise was attributed to short covering, traders said there were few profit takers on the up-pitch.

"This stock can move up pretty sharp on 200,000 shares (volume). That means that there are simply not many people who want out with a 10% to 20% gain," said a sellside trader.

"If you believe as I do that they will bring a product to market and be around in two years, then you can see how hard it will be for the shorts to get out. If one short wants out with 200,000 shares, it can move the stock $0.50 - $1.00. There are 20% shorts here. There is small downside risk to $4, and good upside to $12. I think it's a good bet."

Volume in the stock was 1.16 million shares versus the norm of 208,064 shares.

Based in Waukegan, Ill., the company's oncology portfolio is built on two novel, proprietary platforms: a tumor-targeting platform, and the NeoLipid liposomal drug delivery platform.

The trader said phase 3 data for IL-13, or Cintredekin Besudotox, is scheduled to be reviewed in two to three months, followed by FDA application.

Coley eyed, edges up

It being a thin market, and with a couple of high-profile mergers in the works, traders said there was some positioning taking place in a quiet fashion on Monday. Coley Pharmaceutical Group, Inc. was a name mentioned as a pick getting some attention.

"We're seeing ever more some small moves here and there. It's fourth quarter for one thing so folks will be wanting to position for the end of the year," one sellside trader said.

Coley was a pick in the cancer area, he said. The stock (Nasdaq: COLY) ended Monday higher by a nickel, or 0.42%, at $12.

"Coley should be the next runner, once people realize that Coley has a strong IP (intellectual property) position and partner (Pfizer, Inc.)," the trader said.

Wellesley, Mass.-based Coley's product candidates include ProMune in phase 3 clinical trials for cancer, Actilon for chronic hepatitis C virus, AVE7279 and AVE0675 for respiratory diseases, and VaxImmune for breast, prostate and lung cancers as well as infectious diseases.

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