Nektar up over 10% on Pfizer's move; Encysive, Alexion up big; Biopure loses 4% after follow-on

By Ronda Fears

Nashville, Jan. 13 - Biotech players were not scared off by Friday the 13th, brushing past any superstitions to holding long positions over a long weekend to push the biotech group as a whole into positive territory. The markets are closed Monday in observance of Martin Luther King's birthday.

It was a struggle to keep the biotech as a group above water, traders said, but the major biotech indexes settled the day stronger than the broader indexes, although stocks on whole closed out Friday on higher ground.

"It was a tough trading day. It was a tough week, really," said a sellside biotech trader at one of the bulge bracket firms in New York. "Typically I'd say people are reluctant to hold onto long positions over a long holiday but there were some nice signals that the declines we saw mid-week were maybe just a case of nerves, so to speak."

Genentech, Inc. one of the top two biotech names, was largely blamed for the sector's retreat this week, as it reported strong earnings but analysts expressed concern about sale figures for some of its cancer drugs. On Friday, Genentech shares (NYSE: DNA) recouped losses from the week, which were significant, with the stock adding $1.42, or 1.65%, to $87.56. The stock was trading at $87.41 before the earnings report on Tuesday.

Another strong sign for biotechs, traders said, was Pfizer, Inc.'s payoff to sanofi-aventis for its marketing rights of the inhaled insulin drug Exubera, developed by Nektar Therapeutics, at a price tag of $1.3 billion.

Buyers sniffing for buyouts

Nektar Therapeutics got a huge shot in the arm from Pfizer's move and the news also bolstered other biotechs with products at or near commercialization, traders said.

"This has no financial or commercial impact on Nektar. Their agreement was with Pfizer, not sanofi-aventis, but the stock traded up because Nektar's valuation is tremendously driven by Exubera and you figure Pfizer must be pretty sure of its approval to pay up that kind of dough for it," said a sellside trader.

The Food and Drug Administration is due to make a decision on Exubera in two weeks, on Jan. 27.

Nektar gets a 15% royalty from Exubera sales under its deal with Pfizer. Pfizer's purchase of the Exubera marketing rights from sanofi-aventis, which was announced on Thursday, stems from the 2004 acquisition of aventis by sanofi as Pfizer had originally been working on the product with aventis.

Nektar shares (Nasdaq: NKTR) shot up Friday by $1.89, or 10.44%, to $20.00.

"It really put a new spin on the hype about Big Pharma pumping more money into biotechs," the sellsider continued. "The focus now is on anyone with a product at the threshold of FDA approval. Pfizer has the biggest war chest in terms of cash, maybe, but there are lots of others with dollars to repatriate."

Encysive shares up over 6%

Encysive Pharmaceuticals, Inc. and Alexion Pharmaceuticals, Inc. were two biotechs with drugs in late-stage development that a buysider based in Boston was focused on Friday for reasons along the lines of what the sellsider was talking about.

"I'm adding to positions in Encysive and Alexion, and looking hard at Myogen, too," the buysider said. "They have partners and we've been seeing what may develop into a trend where the Big Pharma guys are just buying out these drugs as they hit commercialization. Then, with the big bucks in hand the biotechs go back to doing what they do, finding new cures."

Bellaire, Texas-based Encysive concentrates on vascular and intravascular diseases. The Food and Drug Administration has approved its anticoagulation drug Argatroban, which is marketed by GlaxoSmithKline plc.

"Merchandising rumors were hitting The Street [about Encysive] and possible news from the FDA is coming out soon," the buysider said.

In addition to Argatroban, Encysive last year completed a phase 3 trial for its heart drug Thelin for pulmonary arterial hypertension, but it is meeting with competition from Myogen, Inc.'s Ambrisentan, which passed a phase 3 trial last month. Westminster, Colo.-based Myogen is working with Novartis AG on its heart medication.

Encysive shares (Nasdaq: ENCY) gained 54 cents, or 6.1%, to $9.39 on Friday. Myogen shares (Nasdaq: MYOG) dropped 14 cents, or 0.39%, to settle out at $35.88.

Alexion shares rise over 4%

Alexion, based in Cheshire, Conn., is focused on hematologic and cardiovascular disorders, autoimmune diseases and cancer. Its two lead candidates are eculizumab used in blood transfusion complications and the heart medication pexelizumab being developed with Proctor & Gamble.

Alexion shares (Nasdaq: ALXN) gained 89 cents on the day, or 4.44%, to $20.95.

"To paraphrase a line from [columnist] Dave Barry, I will cheerfully chew up a jumbo roll of aluminum foil, one sheet at a time, if eculizumab doesn't show statistically significant results," the Boston buysider said.

"Reduction in transfusion requirements is also an important endpoint, as it will in part justify the eculizumab costs and this will provide a quasi-independent assessment of drug efficacy. Transfusions are quite expensive due to the collection, testing, transport and administration costs. I think there's a lot of potential here."

Biopure slips after deal

Biopure, Inc. returned to tap investors again with a follow-on stock offering, less than a month from its last trip to the market to sell more stock. In the deal that priced after Thursday's close, the maker of synthetic blood will pocket around $3 million in net proceeds.

Cambridge, Mass.-based Biopure sold 4.11 million shares at 82 cents each, discounted from Thursday's close of 90 cents, plus five-year warrants to purchase another 4.11 million shares with a strike price of $1.025.

"This is sheer desperation," said one buyside market source. "There are potential negative effects from [Hemopure] usage, it's not proven safe by FDA, and there is a SEC investigation for securities fraud, about eight legal suits in line...and they are really about out of money and time. "The EU news was just fluff in an attempt to hold the door open above 85 cents."

Biopure announced early Wednesday that it plans to apply in mid-2006 for regulatory approval to market its investigational oxygen therapeutic Hemopure in Europe to treat acute anemia in elective orthopedic surgery patients. Then the follow-on offering was announced after Wednesday's close.

On Dec. 20, Biopure netted about $5 million from a follow-on offering of 8.8 million shares at 68 cents, discounted from the previous day's close of 75 cents, plus warrants. That deal came on the heels of the company getting a notice from the Nasdaq Stock Market that it is in jeopardy of being delisted because its stock had been below $1.00 for 30 consecutive business days. The company has six months to regain compliance.

Wyeth adds on settlement

The floating-rate convertibles of Wyeth added 1.5 points to about 105.5 bid, 106.50 offered. Its active trading was said to be a continuation of a pick up in volume marked since the beginning of the year with a jump in its underlying shares since December.

Wyeth shares (NYSE: WYE) added 64 cents, or 1.3%, to $48.28 on Friday.

The Madison, N.J.-based company, which is conducting human trials of three treatments for Alzheimer's Disease, said it hopes to begin testing at least three more promising treatments this year for the degenerative brain disease.

Also on Friday it said that it had settled litigation with generic drugmaker Teva Pharmaceutical Industries Ltd. over its Effexor drug.

"They're working on new Alzheimer's drugs. There's been positive buzz coming out of the health care conferences," a sellsider said.

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