Genzyme gets AnorMED nod but hurt by 3Q; Nabi up 6% on asset sale; Trimeris off 13% on warning

By Ronda Fears

Memphis, Oct. 12 - Biotech stocks were stronger for the most part Thursday although there were several weak spots, such as Genzyme Corp., which was hurt by sharply lower third-quarter results although it has tentatively beat out Millennium Pharmaceuticals, Inc. for the Canadian biotech AnorMED, Inc.

Meanwhile, last call for new deals on this week's calendar passed without any takers, pushing Rosetta Genomics Ltd. and Light Sciences Oncology, Inc. to next week's calendar. In fact, next week's calendar is looking robust, at least on the surface. This week's slate had looked optimistic, as well, but nothing got off.

Syndicate sources say, though, that even next week's slate could get carried forward.

"Everything is subject to change these days, you have to remember that, but there are several deals on the calendar for next week," said one biotech banker.

"Actually, it's really feeling better for the end of the month."

Indeed, it has been a brutal year for fund-raising among biotechs, as small cap biotech stocks have lagged the broader markets. According to The New York Society of Security Analysts, Inc., as of early fall, the Amex Biotechnology Index is down by more than 10% for the year and the Nasdaq Biotechnology Index is down by about 7%.

The Milken Institute, a think tank based in California, issued a detailed report Thursday with a host of recommendations to bridge the funding gap for early stage biotechs culminating from a series last fall to address the "crisis" and explore new channels for attracting capital, including pooling intellectual property, the use of foundations, enhanced directors and officers insurance, advanced purchases, donor bonds and other such derivatives instruments. (See full report elsewhere in this edition.)

Genzyme gauged by charges

In trade Thursday, Genzyme sank as weaker third-quarter results, hampered by extraordinary charges, overshadowed its tentative win in the battle to buy out AnorMED. But, AnorMED still left the door open for Millennium to match the new bid, so players said it was still an interesting three-way play.

"It's not over yet," said a sellside trader. "Genzyme's numbers didn't help it tremendously, but they weren't that bad, either. It's very exciting."

Genzyme shares (Nasdaq: GENZ) fell $1.08, or 1.59%, to $66.90 on Thursday.

Vancouver, B.C.-based AnorMED said late Wednesday that it has deemed Genzyme's latest bid of $13.50 per share superior to the $12-per-share offer previously accepted from Cambridge, Mass.-based Millennium. Genzyme has been pursuing a deal with AnorMED for around a year, and its latest offer beat Millennium's, which had bested Genzyme's unsolicited offer of $8.55 per share in early September.

AnorMED said, however, that if Millennium matches or exceeds Genzyme's proposal, it would support the Millennium offer.

On the events of the situation, AnorMED shares (Nasdaq: ANOR) weakened a tad, losing 18 cents on the day, or 1.28%, to close at $13.90, still well above Genzyme's latest offer and possibly indicating there are some who believe Millennium will boost its bid.

Millennium shares (Nasdaq: MLNM) were holding rather steady in the face of the AnorMED news, traders said. The stock on Thursday slipped by 6 cents, or 0.6%, to $9.97. Millennium is scheduled to report third quarter results Oct. 26.

"Well it seems like nobody (myself included) knows quite what to do at the moment," said another market source. "My gut tells me to run for the hills, my heart tells me to stick around. I didn't think Millennium would up its bid, but the market seems to think it will. We'll just have to wait."

As for third quarter, Cambridge, Mass.-based Genzyme posted sharply lower net income of $16 million, or 6 cents a share, compared with $115.7 million, 43 cents share, for third-quarter 2005, which it blamed on charges amounting to $149.4 million for the impairment of goodwill associated with its genetics testing business.

Excluding charges, Genzyme said it would have reported net income of 73 cents a share, beating the First Call analyst consensus of 71 cents a share. Revenue for the quarter gained 14% to $808.6 million, up from $708.1 million last year.

Nabi cheered on cash boost

Nabi Biopharmaceuticals was getting cheers Thursday from the $150 million sale of its PhosLo program to Fresenius Medical Care, as it will boost its cash position as well as trim its cash burn rate going forward. One trader said it was "thanks to Third Point" LLC, the New York-based hedge fund that prompted and prodded Nabi to find a way to build shareholder value.

On the news, Nabi shares (Nasdaq: NABI) came off the day's high of $6.80 but chalked up a gain of 38 cents, or 6.07%, to settle the session at $6.64 after some 2 million shares traded, versus the norm of 474,912 shares.

But some players said it was a move that ultimately would damage the Boca Raton, Fla.-based biotech. In addition to PhosLo for kidney failure, Nabi is developing drugs for Gram-positive bacterial infections, hepatitis and nicotine addiction.

"This move has actually damaged the pipeline severely," said one buysider. "It was given away, at a fire sale price. Let me put it this way, if you're forced to create 'race car' value by putting the 'car' up for sale, you sure as hell don't sell the mag wheels first. Now the only curb appeal is under the hood and needs a massive rebuild, leaving shareholders in the back seat without a driver."

Fresenius will pay $65 million in cash up front plus $20 million in milestone payments and royalties on any future sales of products formulated under the program until the total consideration reaches $150 million, according to Nabi.

Beyond the deal, Nabi executives said in a conference call that the company continues to work on improving its financial condition by pursuing partners and out-licensing its other programs.

Gene Logic gains 12%

Elsewhere, Gene Logic, Inc. was another strong gainer on news of an agreement with Eli Lilly & Co. to discover new development paths for multiple clinical drug candidates that Lilly has abandoned in the lab. Although the deal did not involve an immediate infusion of cash, traders said it was a positive event.

"This is laughable - a $5 million market cap appreciation on a broad deal like this with a major Big Pharma is wild," said a buyside market source.

"There was big buying late in the day that pushed Gene Logic shares up big."

Gene Logic shares (Nasdaq: GLGC) gained 18 cents on the day, or 11.92%, to close at $1.69.

Gaithersburg, Md.-based Gene Logic will get milestones and royalties similar to those paid for development-stage in-licensing deals, discounted for Lilly's contribution as the originator of the compound. The agreement also provides Gene Logic the option to receive an exclusive license to any drug candidate that Lilly chooses not to pursue, in which case Lilly would receive milestone and royalty payments.

A month ago, Gene Logic said it would pursue drug repositioning deals with big pharmaceutical concerns, which came after the company slashed its genomics division earlier this year on declining revenues from that unit. The company said it believes its approach to repositioning high-quality drug candidates that stalled in clinical development for reasons other than toxicity could, in many cases, enable these candidates to return directly into phase 2 clinical development.

Trimeris tumbles on FDA delay

Back to earnings-related news, Trimeris, Inc. took a dive Thursday after warning that third-quarter sales of its HIV drug Fuzeon would fall short of expectations and that the FDA has requested more safety data on a needle-free drug delivery system for the drug.

Trimeris shares (Nasdaq: TRMS) dropped $1.18 on the day, or 13.02%, to $7.88.

"I personally think that the needle-free concept will pay off, whether it's for HIV or whatever. It's the wave of the future," said a biotech fund manager in Boston. "Besides that, the news on Trimeris was positive in the long run. They are turning profitable this year. So, I was buying on the weakness, for sure."

After Wednesday's close, the Morrisville, N.C.-based biotech cut its 2006 sales forecasts for Fuzeon in the United States and Canada to a range of $126 million to $134 million compared with a prior range of $140 million to $150 million.

But, the company said it expects to post a profit for 2006 - the first in its 13-year history.

The needle-free delivery platform - being developed in partnership with the Swiss-based Roche Holdings AG - was associated with nerve pain and hematoma, which lead to the FDA requesting more data. As a result, the application might not proceed until the first half of 2007, the company said.

Discovery Labs rockets up 24%

Discovery Laboratories, Inc. gained sharply Thursday as it released more Surfaxin data and announced that the FDA meeting to discuss proceeding with the drug's application was set for Dec. 21. Traders said that many holders were more than happy to help with the frantic short covering on the news by selling into the rally, however.

"This is sort of like the last time, reports of everything already known, except the meeting with FDA is probably a month later than expected. Smart money will take profits," said one sellside trader.

Discovery Labs shares (Nasdaq: DSCO) gained 51 cents on the day, or 23.94%, to $2.64.

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