Genentech recoups from Avastin blow; ImClone slumps; Nastech drops; NitroMed strikes new low

By Ronda Fears

Memphis, March 2 - Biotech players were running for cover, still unable to reconcile upbeat sentiments with the broader market's negativism. Moreover, earnings and product news steered biotech issues, and most of the herd traveled south.

"The market is trying to find its legs," said one sellside trader.

But a buyside market source said it was "a matter of the capitulation coming to fruition." He added, "There are more bears than bulls right now. I agree with others who have said that the market is destined for a correction."

On product news, shares of Accentia Biopharmaceutical Inc. and BioDelivery Sciences International Inc. dropped sharply Thursday after the Food and Drug Administration told the companies that their nausea treatment Emezine was not approvable. Accentia shares (Nasdaq: ABPI) dropped 61 cents, or 8.08%, to $6.94, and BioDelivery shares (Nasdaq: BDSI) fell 75 cents, or 23.96%, to $2.38.

Genentech drops, comes back

Genentech, Inc. was off in premarket action by more than 2% on news that its blockbuster colorectal cancer drug Avastin was linked to a brain condition in some patients taking it. But the Big Biotech rebounded as more news flowed as the condition seemed to be a rare event, with the stock ending the day slightly higher.

"More cases are likely to be identified and the drug's label will be changed to reflect the condition, but we do not expect Avastin usage to suffer because RPLS is a rare and reversible condition," said Merrill Lynch analyst Eric Ende in a report Thursday.

Genentech shares (NYSE: DNA) settled Thursday higher by a dime, or 0.12%, at $85.05.

Genentech said Thursday it would brief the FDA following a report in this week's New England Journal of Medicine that two women developed reversible posterior leukoencephalopathy syndrome, or RPLS, while on Avastin. Both patients later recovered from the condition, which can lead to blindness and other complications. A third case is being investigated, according to the medical journal.

Genentech also is studying Avastin in combination with 5-fluorouracil (5-FU)-based chemotherapy for patients with relapsed, metastatic colorectal cancer.

"Avastin was taking market share from Imclone and there is a report that it causes brain tumors. This could be huge for Erbitux to gain more of the market," speculated a buyside analyst. ImClone Systems, Inc., however, did not see a rise from Avastin's bump, or even as a result of good news on its Erbitux front.

Imclone held back by options

ImClone Systems, Inc. got FDA approval for an expanded use of its colon cancer drug Erbitux to include head and neck cancer but the stock was held back by heavy options activity and a limited increase in revenues from the new product use, traders said.

"They are going to hold the price right here until the options expire," said a sellside biotech stock trader, noting heavy selling in $35 and $40 call options. "If it weren't for the options trading, the stock would probably be over $40 by now."

ImClone shares (Nasdaq: IMCL) fell $1.58 on the day, or 4.05%, to $37.42.

The trader also noted that sellside analysts were not boosting their revenue projections for ImClone by much because of the news because some 20% of Erbitux sales are already from off-label uses, primarily head and neck cancer.

Nastech dives on Merck snub

Nastech Pharmaceutical Co. fell hard Thursday after former partner Merck & Co. returned the marketing rights to PYY3-36, Nastech's nasal spray that is being studied as an obesity drug candidate.

A sellside trader said he thought the "panicked" reaction resulted in Nastech shares being way oversold, but a buyside analyst said the stock could go lower.

Nastech shares (Nasdaq: NSTK) fell $8.59, or 37.32%, to settle at $14.43.

"I don't know how else to read this release. It states that it was not effective. I translate that as it doesn't work. There is some ambiguity in the wording," the buysider said. "I have been following Nastech for some time, but don't own any. I believe the price will erode even further unless the $3.7 million [in revenues Merck will return to Nastech] will have a counter effect. I don't think very many realize that."

Bothwell, Wash.-based Nastech said Merck terminated its agreement on March 1 after determining that earlier clinical data had shown PYY3-36 wasn't effective. Nastech said it believes that it may be able to show the drug is effective by experimenting with the dosing.

In any event, Nastech said it intends to pursue development of PYY3-36.

"While we are disappointed that we and Merck could not reach a mutually acceptable agreement ... we will continue to advance the program," said Steven Quay, Nastech's chairman and chief executive, in a statement. "Nastech has both the human and the financial resources to drive the rapid development of PYY for obesity, and to also advance its other ongoing programs."

Yet, Quay added that Nastech hopes to find a new commercialization partner for the drug.

NitroMed players disheartened

NitroMed, Inc.'s wider net loss hugely missed analyst estimates, sending shares lower by 17% to a new 52-week low. Plunging revenues, generated mostly from its heart medication, BiDil, for black patients, were the big disappointment.

The stock had hit a low of $10.80 on Jan. 23, just days before the company pocketed $62.5 million from a direct placement of stock in the PIPEs market. On Thursday, NitroMed shares (Nasdaq: NTMD) fell $1.90, or 16.68%, to $9.49 and had traded as low at $9.27 during the session. The stock had hit the 52-week high of $24.45 on Aug. 2.

Lexington, Mass.-based NitroMed posted a fourth-quarter loss of $31.6 million, or $1.04 per share, widening from a loss of $9.7 million, or 36 cents per share, during fourth-quarter 2004 as revenues plunged 61% to $3.7 million from $9.5 million, which the company attributed to the termination of a contract with Merck & Co. For the year, NitroMed lost $105.9 million, or $3.49 per share, compared with $29.8 million, or $1.14 per share, in 2004 as revenue fell 63% to $6 million from $16.5 million last year.

Of total revenue, BiDil accounted for the bulk of revenues at $3.3 million in fourth quarter, after it began shipping in July, and $4.5 million for the year. But players in the story were disappointed with those figures.

"No one is buying this stupid drug they sell," said a sellside market source on the West Coast. "You can buy the generics in Canada for 10 cents versus $10 a pill from NitroMed."

NitroMed player buys on dip

One NitroMed believer, however, was buying back into the story on the decline.

"After taking a 15% loss in NitroMed about a month ago, I sold because I knew (and thought that everyone in the world knew) that it would miss its revenue estimates this quarter," said a buysider in Florida.

"No matter that revenue estimates are meaningless for new drug companies. The daily scrips [prescriptions] are what counts and those are published every day, so no news there," the buysider continued. "Today, it is clear that investors finally threw in the towel on NitroMed, which means that it's time for me to get back in. If scrips don't materialize in 6 months, it will sell out. So I see this as a great risk reward, even though scrips have been disappointing. Bottom line - it's the same company it was yesterday, but today people's emotions got the best of them."

NitroMed expects 2006 operating expenses to be $95 million to $110 million, excluding certain costs, and said they plan to hire 140 to 155 sales representatives by the third quarter, mostly related to BiDil sales. The company projects BiDil will account for 90% of revenues in 2006.

Genta retreats after initial gain

Genta Inc. was higher by more than 2% in premarket action Thursday after announcing data from a phase 2 trial showed its Ganite was "highly effective" when compared with Aredia in hospitalized patients with cancer-related hypercalcemia - a condition of life-threatening blood calcium levels most common in patients with advanced cancer.

But on further reading players found that Berkeley Heights, N.J.-based Genta's Ganite was found to be no more effective than Novartis AG's Aredia, and Genta shares ended the day in negative territory.

"The more I have learned, the more I know Genta has a terrible risk reward profile," said a sellside trader. "They would be in much better shape if they had a great partner."

Genta shares (Nasdaq: GNTA) closed the day off by 11 cents, or 3.9%, at $2.71.

CV Therapeutics drops 5.5%

CV Therapeutics, Inc. plunged on fourth-quarter and 2005 results and concerns that the company may have trouble meeting Street expectations for its heard drug Ranexa.

"From today's reaction to [the] earnings announcement, you would think that CV didn't have any sales of Ranexa during the fourth quarter. Oh wait, they didn't, did they?" said a buyside equity trader. "It's predictable that this stock drops after earnings whether they beat expectations or not. [The] conference call last night was standard fare - under-promising, so as not to inflate expectations. Market opportunity is substantial, I think, but don't expect drug sales to ramp up anytime soon."

CV shares (Nasdaq: CVTX) fell Thursday by $1.49, or 5.52%, to $25.52.

Sellside analysts were already predicting that CV would have trouble meeting their projections for Ranexa, following the Palo Alto, Calif.-based company's results that showed a much wider net loss than expected and lower revenues.

For fourth quarter, the company reported a net loss of $74.1 million, or $1.65 per share, compared with a net loss of $53.8 million, or $1.62 per share, for fourth-quarter 2004 while revenues declined to $3.4 million from $7.6 million. For the year, the company posted a net loss of $228 million, or $5.66 per share, compared with a net loss of $155.1 million, or $4.90 per share, for 2004 with revenues slipping to $18.95 million from $20.4 million.

CV said that at Dec. 31 it had cash and equivalents of $460.2 million, compared to $404.5 million a year before.

Operating expenses for the year increased to $243.1 million, compared with $167.5 million in 2004, and CV said it expects spending to rise again in 2006 to an estimated $310 million to $320 million - a 19% to 23% boost from 2005 and higher than many analysts had anticipated.

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