ViroPharma slips; Panacos zooms; Cephalon soars on short covering; Gilead declines; Celgene retraces

By Ronda Fears

Nashville, Jan. 10 - Comments from executives with Gilead Sciences Inc. at the JPMorgan conference in San Francisco to the effect that the company is on the hunt for acquiring or licensing new products sparked interest in several names in the HIV area, market sources said.

For the most part, however, traders said the biotech sector lost some luster Tuesday as the widespread ebullience of the stock market faded.

Some 75% of Gilead's revenue, forecast at roughly $1.4 billion for 2005, comes from HIV drugs, said chief executive John Martin, so it would make sense to pick up biotechs in that area. Gilead Sciences shares were easier on the news, however, slipping 82 cents, or 1.42%, to $57.09, but several smaller HIV names settled in the green.

Panacos Pharmaceuticals Inc., a Watertown, Mass.-based biotech focused on HIV drugs, shot up more than 5% largely on such speculation that it might be a possible target for Gilead. On the heels of Gilead's presentation Monday, Panacos was scheduled to present at the JPMorgan event at 4:30 p.m. ET on Tuesday. Panacos shares ended the day up 42 cents, or 5.25%, at $8.42.

ViroPharma declines 2.5%

ViroPharma took a dive Tuesday following a presentation at the JPMorgan event, but some traders in the name were anticipating the stock could rebound nicely on Wednesday.

"Obviously, no one was inspired by the presentation yesterday [Monday]," said a sellside stock trader.

But players were expecting a nice shot in the arm for ViroPharma shares on Wednesday in reaction to a late-day news item on the wires that Fidelity Management & Research Co., through FMR Corp., had taken a large position in ViroPharma.

"It just came across the wires," said a buyside market source of Fidelity's disclosure of buying ViroPharma shares. "I expect some upward movement tomorrow. They now hold 10.2% of ViroPharma."

FMR disclosed the increased stake in ViroPharma in a Securities and Exchange Commission filing late Tuesday.

Exton, Pa.-based ViroPharma concentrated on antibiotics to treat a number of viral diseases, including hepatitis C infections.

Cephalon shares, convertibles rise

Cephalon Corp. issues gained sharply after announcing a settlement with Mylan Laboratories, Inc. to their patent dispute over a generic version of Cephalon's sleep disorder drug Provigil, used for such things as sleep apnea and narcolepsy.

Cephalon shares rocketed up $6.10 on the day, or 8.76%, to close at $75.74. Its bonds also moved up on the news with the 2% convertibles adding 12 points to about 172.5, the A tranche of the zero-coupon convertibles up about 9 points to nearly 132 and the B tranche of the zeros also up around 9 points to 138.

"The short covering in this stock was crazy today," remarked a stock trader, referring to the 9.5 million shares of Cephalon that changed hands Tuesday - some 5 to 6 times the normal volume in the stock. Meanwhile a convertible market source said of Cephalon, "They're a machine."

Frazier, Pa.-based Cephalon granted Mylan a non-exclusive royalty-bearing right to market and sell a generic version of Provigil in the United States effective in Octobler 2011, unless Cephalon gets an extension, in which case Mylan would have to wait until April 2012. An earlier entry by Canonsburg, Pa.-based Mylan could happen, though, if another generic version of Provigil hits the market.

Mylan shares rose 9 cents, or 0.43%, to $20.86 on the news. Financial terms were not disclosed.

"Three lawsuits down, and only one to go," said a buyside market source. "You think Barr has any legal ground to stand on, given that three of its competitors decided not to proceed with challenging the Cephalon particle size patent on Provigil?"

Barr Pharmaceuticals, Inc. saw its shares gain 89 cents, or 1.34%, to $67.28 on Tuesday. The Woodcliff Lake, N.J.-based generic drugmaker also is vying for a shot to market a generic form of Provigil.

Celgene pulls back by 3%

Another buysider was exasperated with the rapid rise in Cephalon shares juxtaposed with the retreat in Celgene Corp.

"I was meaning to sell my Celgene stock this morning and buy Cephalon. By the time I got around to it the rise in Cephalon was looking discouraging. With the short covering so rampant, you just know it's going to snap back in short order," he said. "It's OK though 'cause Celgene will move much higher. I only wanted to lock in profits and I would have bought Celgene back by tomorrow. Oh well. I'll just sit here."

Celgene gave back virtually all the gains seen Monday, which were chalked up even after the Summit, N.J.-based company reiterated its 2005 forecast that earnings would be hurt by costs associated with rolling out Revlimid, a new drug approved last month to treat transfusion-dependent anemia.

On Tuesday, Celgene shares lost $2.33, or 3.24%, to close at $69.55.

Celgene, which is scheduled to report 2005 earnings on Jan. 26, said though that 2005 revenues should be up by 30% to $535 million year over year, resulting in earning per share of 36 cents to 38 cents. Until late December when Revlimid got Food and Drug Administration approval, Celgene was expecting adjusted EPS of 55 cents for 2005.

For 2006, the company said it expects research and development expenses to increase by up to 25% year over year, and selling, general, and administrative costs to rise by about 10% to 15%.

Inspire news inspirational

Inspire Pharmaceuticals, Inc. announced early Tuesday that it has received European orphan drug designation, which gives it exclusive marketing rights for 10 years if approved for marketing in the EU, for its cystic fibrosis treatment denufosol tetrasodium, which is also being studied to treat certain types of asthma.

The stock gained 10 cents on the day, or 1.82%, to close at $5.60 and in after-hours activity, at 4:19 p.m. ET, the stock was up another 10 cents, or 1.79%, to $5.70.

"I just bought back in this morning after I sold everything that I held with this issue last summer," said a fund manager in Chicago. "I have been looking for a re-entry point for a long time. With the news this morning and the approvable letter, this issue should climb back up in the foreseeable future."

A month ago, Inspire shares took a 34% plunge to $4.90 after its lead drug diquafosol tetrasodium - a dry eye treatment - was dealt another harsh blow by the FDA, which asked for more tests on the drug. The stock had run up more than 18% ahead of the FDA action.

Durham, N.C.-based Inspire said the fate of its eye drug was uncertain and no further clarification has come from the company. Inspire has the marketing rights for the eye treatments Elestat and Restasis in the United States under co-promotion agreements with Allergan, Inc., plus five product candidates in clinical trials.

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