Momenta off on secondary sale; Geron zooms on Merck pact; ViroPharma up; Amgen quiet

By Ronda Fears

Nashville, July 18 - The biotech sector followed the broader markets lower Monday ahead of earnings from biotech giant Amgen Inc. after Tuesday's close, which is expected to show positive signs. Earnings from several Big Pharma names on tap later this week was cited as part of the reason for the biotech group's flagging.

As for Amgen, the activity was described as stilted with the stock barely moving on modest volume. Analysts following Amgen are expecting the Thousand Oaks, Calif.-based company to have another quarter of robust earnings, with the consensus looking for earnings of 72 cents a share, compared with 62 cents in second-quarter 2004. The stock closed off 13 cents, or 0.18%, at $70.50.

Conversely, Big Pharma results are anticipated to show negative impact from ongoing litigation battles and regulatory troubles related to drug recalls and labeling complications, among numerous other factors. Johnson & Johnson, Pfizer Inc., Merck & Co., and Wyeth are due to report earnings this week.

"Amgen and Genentech have raised the expectations for biotech, I think," said one equity strategist. "On the other hand, the Big Pharma group is a drag on everything."

With the mixed signals, the Nasdaq Biotech Index followed the broader markets southward, losing 0.37% on Monday.

Primary quiet but poised to go

The primary arena wasn't entirely quiet, but one observer said "the jury is still out" as to how interest rate speculation might affect capital-raising efforts among biotechs. The life sciences banker noted that Treasury yields backed up Monday amid selling attributed to anxiety that Federal Reserve chairman Alan Greenspan this week may send signals of further rate hikes.

Yet, equity players are looking for Accentia BioPharmaceuticals Inc.'s initial public offering to debut this week along with the IPO of Adams Respiratory Therapeutics Inc. plus pricing on a secondary offering from Momenta Pharmaceuticals Inc.

In the PIPEs arena, Immune Response Corp. announced a $15 million equity line from Cornell Capital Partners available for the next two years. Carlsbad, Calif.-based Immune Response is focused on immune-based therapy for HIV and multiple sclerosis.

Kosan Biosciences Inc. shot up in secondary trade after it announced it had obtained a $35 million credit facility from Silicon Valley Bank. The stock gained 8.55%, or 63 cents, to a new 52-week high of $8.00. The Hayward, Calif.-based company plans to use the funds to advance the clinical development of its anticancer drug candidates. Its two lead product candidates include KOS-862 and 17-AAG. The company collaborates with Hoffmann-La Roche Inc. and F. Hoffmann-La Roche Ltd.

Venture capital the big draw

The big money, so to speak, on Monday came from venture capital transactions.

Affymax Inc. gets $60 million in financing, which the company was touting as "one of the largest venture financings in biotechnology this year."

Palo Alto, Calif.-based Affymax is a collaboration of several venture firms created as an independent company that was spun out from GlaxoSmithKline plc in August 2001. Proceeds will be used to move forward with a phase 2 clinical program for the company's Hematide candidate in patients with chronic kidney disease and cancer, as well as develop a pipeline of promising peptide product candidates.

Protalix Biotherapeutics Ltd. also announced a venture capital effort, fetching $5.3 million in the private sale of series C preferred shares to a handful of investors.

The Israeli company is focused on the development of proprietary drugs expressed via unique plant cell culture and bioreactor systems. The company's lead product, a recombinant human protein for the treatment of Gaucher's Disease, is about to enter clinical trials.

Momenta declines on follow-on

Momenta Pharmaceuticals took a dive on filing for a follow-on stock sale, a typical reaction. But one buyside analyst said there were fundamental concerns about the story that also clouded the issue, although he is a fan who suggested buying on the dip.

"The proposed issuance of more shares, even though it constitutes dilution, seldom changes the direction of a stock in the long run," said the analyst from a large equity fund based in Boston. "In the case of Momenta, the effect of such should prove very temporary.

"In fact, if you believe in this stock, you might consider buying near the close today as odds favor it closing near its low. That said, the real value of this stock is probably at least one and a half years away as they await FDA approval."

Cambridge, Mass.-based Momenta specializes in the detailed structural analysis and design of complex sugars for the development of improved versions of existing drugs, new drugs and the discovery of new biological processes.

Its advanced product candidate, M-Enoxaparin, is designed to be a technology-enabled generic version of Lovenox (enoxaparin), a low molecular weight heparin (LMWH), which is used to prevent and treat deep vein thrombosis and treat acute coronary syndromes. In addition, the company intends to develop a technology-enabled generic version of Fragmin (dalteparin), another LMWH.

The company said proceeds from the stock sale are slated for general corporate purposes such as research and development, clinical trial costs and manufacturing expenses as well as acquisitions.

Momenta shares Monday lost $1.56, or 5.36%, to close at $27.53.

Geron inks Merck collaboration

Geron Corp. zoomed Monday on its announced collaboration and license agreement with Merck & Co. Inc. to develop a cancer vaccine targeting telomerase using Merck's expertise in vaccine technologies.

Geron shares Monday skyrocketed $2.29, or 26.63%, to close at $10.89.

In stem cell research circles, Geron is considered to be ahead of the pack, which includes ViaCell Inc., StemCells Inc. and Aastrom Biosciences Inc. ViaCell ended off 4.36%, while StemCells and Aastrom gained slightly on the day.

Financial terms were not disclosed, but Geron will receive an upfront payment, milestone payments upon achievement of certain development and regulatory events, and royalties. Merck has also agreed to acquire equity in Geron at a future date as part of Geron's next round of financing.

Merck received an exclusive option for negotiation of a separate agreement involving Geron's dendritic cell-based telomerase vaccine, which is currently in phase I/II clinical trials at Duke University Medical Center.

ViroPharma zooms on upgrade

ViroPharma Inc. stock took off Monday on short covering following an upgrade in the stock by Piper Jaffray, traders said. Debt reduction has also boosted the ViroPharma story, traders said.

Earlier this month, ViroPharma converted the remaining $15.35 million in principal on its 6% convertible senior notes due in 2009 into 6.14 million shares of common stock. With that, the Exton, Pa.-based biotech said it has reduced debt by 57% in just the past two months. It still has a 6% convertible outstanding that matures in 2007.

ViroPharma shares gained $1.91, or 19.35%, to close Monday at $11.78.

According to a convertible trader, Piper Jaffray raised its target on ViroPharma stock to $15 from $7. with an outperform rating, on improved estimates for sales of Vancocin, the company's colitis treatment, to $29.3 million in second quarter from $24.0 million and $102.3 million for 2005 from $79.7 million. Piper now sees earnings of 15 cents a share in second quarter, up from its earlier projection of 5 cents.

ViroPharma focuses on viral diseases, including cytomegalovirus infection and hepatitis C. The company in-licenses from GlaxoSmithKline plc rights to maribavir for the treatment of human cytomegalovirus disease, a member of the herpes virus group that includes chicken pox, mononucleosis, cold sores and genital herpes.

Eyetech seen losing market share

Data released Monday at the annual meeting of the American Society of Retinal Specialists by Genentech reopened the debate on the race for treating wet age-related macular degeneration, known as wet AMD, between Eyetech Pharmaceuticals Inc.'s Macugen drug and Genentech's Lucentis.

In conjunction with data from Genentech in May, one trader said the "knee-jerk" reaction Monday was that Eyetech would lose market share to Genentech, but he disagreed.

Eyetech shares fell $1.72, or 12.79%, to $11.73.

"I heard nothing today to change my belief in Eyetech. The worst of the news is out," the trader said. "I would be lying if I didn't say I wasn't disappointed by today. But there is a big difference between panic and disappointment."

Genentech announced in May data on Lucentis, which treats wet age-related macular degeneration, or wet AMD. Genentech, which hopes to submit an application for the treatment to the Food and Drug Administration later this year.

Eyetech has a wet AMD drug, Macugen, being developed with parter Pfizer that has been on the market since the first of the year.

There are safety concerns, and part of the competition between the two drugs is dosage. Macugen is injected into the eyeball every six weeks, while Lucentis is injected into the eyeball every four weeks.

"Macugen has a proven safety profile and has been effective in two pivotal studies conducted over two years," said Eyetech and Pfizer in a joint press release. "The favorable safety profile of Macugen has been maintained for two years in patients who participated in clinical trials and in tens of thousands of patients who are using the drug."

Eyetech drop may trigger buyout

The selling in Eyetech, the trader said, was a matter of concern to holders in light of renewed speculation that the company would be a takeover target by Genentech or its partner Pfizer Inc.

"We have seen the potential for a take over," the pro-Eyetech trader said. "For those who got in at a much higher price, it's very painful. The market taking Eyetech down might trigger such an event [takeover bid] to lock in a lower price, and they would be screwed."

Standard & Poor's equity research maintained a hold rating on Eyetech shares in light of the positive phase III results for Genentech's Lucentis, he said, and posed a view that Eyetech's Macugen is poised to lose market share as well as speculation that the company is a potential takeover candidate.

Merrill Lynch analyst Eric Ende also speculated in a report Monday that Genentech's Lucentis would become the "dominant drug" for AMD.

The trader noted that the selloff appeared to be a "retail herd" as he noticed only some "7% of the trades today were big institutional block trades."

Genentech also declined on the day, which the Eyetech trader attributed to concern that the $2 billion funding the giant biotech raised last week would go for something like Eyetech rather than more lucrative acquisitions in manufacturing capacity for its promising cancer drugs.

Genentech shares lost $1.52, or 1.7%, to close at $88.06.

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