Valeant up on restructuring; Nabi gains; Avanir rises on drug filing; Enzon higher; ViroPharma eyed

By Ronda Fears

Memphis, April 4 - Valeant Pharmaceuticals International got a nice boost Tuesday following its announced restructuring and updated earnings guidance just two weeks after a key hepatitis C drug failed a phase 3 trial.

The restructuring, announced after Monday's close, includes plans to out-license its hepatitis B treatment Pradefovir and cut costs through measures such as reducing the number of commercial regions to three from four. While the company did not specify layoffs, it said it would "rationalize discovery and pre-clinical development operations."

Excluding restructuring charges of $80 million to $100 million, the company said it expects to report break-even adjusted earnings per share in the first quarter and projects adjusted earnings of more than 50 cents per share excluding charges for 2006 and more than $1 per share in 2007. Valeant sees revenue growth at 5% to 10% annually.

Valeant shares (NYSE: VRX) gained 94 cents on the day, or 5.85%, to settle Tuesday at $17.00.

"[Valeant chairman Robert] O'Leary and [Valeant chief executive Timothy] Tyson seemed to have done all they could to increase shareholder value as far as divesting a few divisions, selling off several manufacturing facilities, debt restructuring and acquiring additional products. The tough part for all pharma is getting new drugs to market and Valeant is now in that boat," said a buyside analyst at a fund based in Connecticut.

Valeant now under microscope

Valeant announced March 21 that Viramidine had failed the first of two pivotal phase 3 trials but said it was not dropping the development program and still targeted a commercial launch by the end of 2007.

The stock took a beating on that news, losing 15%, but the buysider said he thinks the drug is worth pursuing. Still, he acknowledged that the Valeant team will be "called on the carpet to produce" results.

"Viramidine may or may not be approved, but the company certainly has data to back up the drug's potential and so the cost was warranted for development. I would still like to see an Infergen/Viramidine combo, regardless, as the gold standard of treatment may still remain one of several treatments for some time to come," the analyst said.

"As VX-950 [Vertex Pharmaceuticals, Inc.'s hepatitis C drug in phase 2 trials] alone doesn't produce SVR [sustained viral responses], there is still much unknown, and of course it hasn't been approved yet. Wasn't it just Idenix [Idenix Pharmaceuticals, Inc.] that had a problem with its HCV [hepatitis C virus] treatment prior to entering phase 3 on a dosing issue that brought efficacy into question? Much is up in the air and Viramidine still seems a worthwhile pursuit. I like the idea of partnering on Pradefovir, or I should say I understand the decision to do so."

Vertex higher, Idenix slumps

Vertex and Idenix moves were polarized though neither had news on the tape Tuesday. Moreover, a sellside trader said they have just been extending moves started some weeks ago.

With regard to Idenix, the stock slumped again Tuesday to hit yet another new 52-week low on the news mentioned above.

Idenix Pharmaceuticals, Inc. announced March 23 that it would modify an ongoing clinic trial for hepatitis C treatment Valopicitabine to reduce dosing levels after observing gastrointestinal side effects. Idenix shares plunged 16% on that news, but later announced that Novartis AG had exercised an option to participate with the drug's continued development - to the tune of $70 million in license fees and up to $455 million in milestone payments.

Idenix shares (Nasdaq: IDIX) closed Tuesday off by 56 cents, or 4.2%, to $12.77, eclipsing the low of $13.17 hit March 29.

"Vertex has just been trending up over the last six months or so. It started coming down about a month ago but now it's back on the upward track," the trader said. He noted low volume in the stock Tuesday and probably some people were adding to positions since no news was on the wires.

Vertex shares (Nasdaq: VRTX) rose 53 cents on the day, or 1.48%, to $36.38.

Window dressing comes down

There actually was not a great deal of news moving biotechs Tuesday, the trader said. Rather, he said it was a matter of the first-quarter window dressing coming down.

"The second quarter has begun; you should not underestimate this factor. Funds have a free hand to test strategies for months without reporting their holdings, and by the way, they are sitting on record cash," the sellsider said.

"The buzz this weekend was about the lack of earnings warnings so far, indicating more record earnings coming for the market as a whole. Funds will be tripping over each other to buy undervalued growth plays."

Bear, Stearns & Co. Inc. analyst Mark Schoenebaum said in a report Tuesday that there could be some upside surprises from Genentech, Inc., Genzyme Corp. and Amylin Pharmaceuticals, Inc. As for negative surprises, he said he doesn't expect any big misses but he is closely watching Amgen, Inc., MedImmune, Inc. and Biogen Idec, Inc.

"We believe strong product sales (Herceptin and secondarily Avastin) give Genentech a good chance to beat consensus revenue estimates despite recent investor concern," Schoenebaum said. "Genzyme could deliver healthy Renagel sales. Also, we believe Amylin could report strong Byetta sales."

ViroPharma a sleeper buy

With regard to repositioning after window dressing books for the end of first quarter, one Boston biotech fund manager said he was cashing in on some positions and looking for good entry points into some stories that he has been watching for a while.

ViroPharma, Inc. is one of the sleepers the fund manager mentioned. Exton, Pa.-based ViroPharma is another hepatitis C biotech but also has a pipeline that also includes drugs for colitis, the common cold and asthma.

"In my opinion, ViroPharma is one of the most attractive in this category. Any upgrades or a corporate press could launch the stock, otherwise it will take a couple of steady 10 to 20 cent gains to get the ramp up solidly over $13. I'm a buyer at anything below $12.50," he said.

"The big problem last week was the bag-holder factor as many remaining weak hands that bought in the high teens and low $20s, and the swing traders that pulled the trigger too early on the falling knife, decided to bail on the magic $13 number. I do hope that these infidels are finally gone for good, because they are the only obstacle left on the road back to fair valuation."

ViroPharma shares have traded in a band of $1.67 to $24.36 over the past year, but the fund manager sees the stock at a good entry point after a steady slide over the past week or so. ViroPharma shares (Nasdaq: VPHM) on Tuesday ended off by 3 cents, or 0.25%, at $11.78.

"Some funds didn't want the stock on their books. But now they will buy it back. It doesn't look good because it dropped," he said. "I want to get in before they begin piling it back on."

Avanir gains 8.5% on filing

Avanir Pharmaceuticals zoomed Tuesday after announcing that the FDA has accepted its New Drug Application for Neurodex to treat involuntary emotional expression disorder, also known as pseudobulbar affect or emotional lability, and granted the drug a priority review.

"This is huge, huge news," said a sellside trader. "It should be an interesting year for Avanir."

Avanir shares (Amex: AVN-R) closed the day higher by $1.18, or 8.46%, at $15.13 with volume more than two times the norm. The stock ran up to $15.80 before easing back late in the afternoon.

San Diego-based Avanir also develops a product for allergy and asthma, AVP-13358. In addition, the company has a research collaboration with AstraZeneca UK Ltd. to develop reverse cholesterol transport enhancing compounds as a treatment for cardiovascular disease and a research agreement with Novartis International Pharmaceutical, Ltd. for orally active small molecule therapeutics as a treatment for inflammatory diseases.

Nabi teams with Fresenius

Nabi Biopharmaceuticals announced a deal with Fresenius AG's biotech unit to advance its transplantation product in the United States, and it got a lift but only after what traders referred to as a rocky start to the session.

"I bought some at $5.60 when it settled and was thinking of buying more, but it looks like $5.30 is a better number on that," one sellsider said. "I personally am waiting to see what pans out this week and looking in that range. I have mixed feelings on this one."

Fresenius said the deal with Nabi was to advance the clinical development of ATG Fresenius S, a polyclonal antibody to prevent organ graft rejection in organ transplant patients. Nabi was granted exclusive sales and distribution rights in North America for up to 15 years following approval by the FDA.

Nabi shares (Nasdaq: NABI) ended up by 9 cents, or 1.65%, at $5.55.

Enzon advances on its own

Fresenius' biotech unit has been on the search for another U.S. partner since January when Enzon Pharmaceuticals Inc. terminated its licensing agreement with Fresenius Biotech. Enzon had decided to redirect its research and development investments.

Enzon said on Monday that it plans to launch clinical trials this summer of its leukemia drug Oncaspar as a treatment for non-Hodgkin's lymphoma and certain solid tumors. Enzon said the FDA has completed its review of an Investigational New Drug application for those indications.

Enzon shares (Nasdaq: ENZN) on Tuesday were still on the rise, adding another 47 cents, or 5.85%, to $8.51.

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