Amgen weakens; Gilead off 3%; Alfacell falls 30%; Nektar up; Accentia lower; Connetics lifted

By Ronda Fears

Memphis, July 20 - Biotechs retreated Thursday to the disappointment of many players who were hoping the uptick would last through week's end. Biotech giant Amgen, Inc. was an obvious scapegoat as it weakened ahead of earnings after the close, but traders said that seemed more of a "cop out."

"We've just got a bunch of nervous nellies," said a biotech sellside trader at one of the bulge bracket firms. On Amgen specifically, he remarked, "Considering the numbers they posted and the pounding the stock got, anything under $70 is cheap."

Just as the closing bell rang, Amgen reported adjusted second-quarter net income of $1.24 billion, or $1.01 a share, up from $1.1 billion, or 83 cents a share, a year before with a 14% gain in revenue to $3.6 billion from $3.17 billion. The company said a 12% gain in stock option expenses and its $1.1 billion acquisition of Abgenix, Inc. were highlights in the quarter.

Amgen shares (Nasdaq: AMGN) closed off 64 cents, or 0.99%, at $63.92 while the Nasdaq Biotechnology Index reverted into negative territory with a 2% loss following a 3% gain the day before.

Elsewhere on the downside, Accentia BioPharmaceuticals, Inc. took a hit while its subsididary Biovest International, Inc. was sharply higher, which frustrated some players. On Accentia, one buysider remarked, "So much selling and negative momentum. I am so sick of this. We need support."

Accentia shares (Nasdaq: ABPI) ended off 25 cents, or 8.31%, at $2.76. Biovest shares (OTCBB: BVTI) gained 18 cents, or 17.31%, to $1.22.

The buysider said he did not think the move in Biovest had anything to do with what was going on at Accentia. He noted that earlier this week Biovest reported regulatory approval from the Russian Ministry of Health and Social Development to recruit patients for an ongoing phase 3 clinical trial of BiovaxID for non-Hodgkin's lymphoma.

"I have a gut feeling that some of the venture capital guys in Accentia are executing their exit strategies," he said. "If that's the case, there is not much we can do except wait."

Gilead sinks on Corus buy

Just ahead of earnings after the close, Gilead Sciences, Inc. was lower and traders said its $365 million acquisition of closely held Corus Pharma, Inc. was a factor as it contributes to a rising cash burn rate. Corus had abandoned plans to go public with an initial public offering in February.

Gilead shares (Nasdaq: GILD) settled the day off by $1.88, or 3.07%, at $59.35. The company reported second-quarter results after the close, posting net income of $265.2 million, or 56 cents a share, up from $196 million, or 41 cents a share, with revenue climbing to $685.3 million from $495.3 million.

"A big overhang on the Corus story was legal issues, which Gilead took care of but at a cost we don't know yet," said a sellside trader. "Once Gilead's earnings are out I think we will see a bounce, but there is an opinion out there that this acquisition, so close to one earlier this summer, is stretching its [cash] limits."

As part of the Corus purchase, Gilead said it had paid an undisclosed amount of money to Novartis AG to settle a trade secrets lawsuit - originally filed by Chiron Corp., which was acquired by Novartis. The lawsuit had overshadowed the Corus story for more than a year and was seen as a contributing factor to it scrapping its IPO plans earlier this year, the trader said.

In early June, Gilead inked a deal to acquire Canada-based Raylo Chemicals Inc. from German chemical concern Degussa AG for €115.2 million.

Seattle-based Corus is focused on respiratory diseases. Foster City, Calif.-based Gilead secured an exclusive option to purchase the remaining shares of the Seattle company when it invested $25 million in Corus in April.

Corus has raised $148.5 million in venture capital since it was founded in January 2001 from a group of investors that includes such big institutional names as JP Morgan Partners, Bear Stearns and T. Rowe Price Associates.

Alfacell falls on PIPE deal

In the trudging primary market, Alfacell Corp. wrapped an $11.3 million private placement and its stock took a bit hit on the event.

The company announced the deal with a group of institutional and individual investors led by ProMed Management, Inc. in which investors agreed to buy 6,457,172 shares at $1.75 each plus two series of warrants for additional shares at $2.88.

Alfacell shares (Nasdaq: ACEL) plunged lower by 86 cents on the news, or 30.07%, to close at $2.

"The big boys who just invested got nearly a 40% discount to market and warrant sweeteners. Even a big load of shit is worth buying if you can get it that cheap. The PIPEs investment calculation is as follows: They knew the stock would take a hit today but they are looking at next year when the company will file an NDA [New Drug Application at the FDA], whether it has a chance of approval or not. And there will be enough dumb asses who will believe the company line right up to the time that the NDA is denied, or if approved, until the likely event that the drug is a flop in the marketplace because it is substantially inferior to the already well-established standard of care," said a buysider in Atlanta.

"If this company had a decent drug with decent market potential, it would be worth at least $400 million to a Big Pharma and management would have sold it out in a heartbeat for $250 million or less. Look what they just sold a big chunk of it for."

Bloomfield, N.J.-based Alfacell is focused on developing treatments for cancer and other diseases using a ribonuclease technology platform. Its lead product candidate, Onconase, is in phase 3b clinical trials to treat unresectable malignant mesothelioma. A phase 1/ 2 trial evaluating Onconase in non-small cell lung cancer also is in progress.

Alfacell said proceeds from the PIPE will be used to support its three-year strategic plan.

Nektar up on Exubera guidance

Nektar Therapeutics on Thursday raised its revenue projections for Exubera, even as partner Pfizer, Inc. said the launch of the pioneering inhaled insulin will be delayed a couple of months.

Pfizer said that because the manufacturing process for Exubera is so complex, it will not be available until the beginning of September. Many observers expected Pfizer to begin shipping the product this month.

Nektar shares (Nasdaq: NKTR) added 75 cents on the day, or 4.71%, to $16.69.

"With the nearest competitor roughly three years behind Exubera, we do not see a delay of one to two months as a threat to the long-term success of the product," said Merrill Lynch analyst Hari Sambasivam in a report Thursday.

"We believe that the additional time invested in training physicians and other health care professionals, ensuring adequate reimbursement (less of an issue with a daily price of $4.20), and facilitating other issues (e.g., pulmonologist visits) is entirely justifiable, and is likely to favorably influence the U.S. launch of Exubera."

Nektar, which makes the inhaler used to deliver Exubera, raised its projections for royalty revenue on the drug to a range of $70 million to $90 million from its prior range of $60 million to $80 million. Nektar said it will provide a 2006 revenue and net loss outlook when it reports second-quarter results on Aug. 3.

Pfizer shares were reacting mostly to its second-quarter report, which involved dramatically lower profits because of tax items but also included a boosted 2006 outlook.

Pfizer posted net income of $2.42 billion, or 33 cents a share, compared with $3.46 billion, or 47 cents, last year and a 10% revenue gain to $11.7 billion. Excluding tax-related items, Pfizer had adjusted income of 50 cents a share for the 2006 period. In the 2005 period, Pfizer recorded a $1 billion tax gain related to the repatriation of foreign profits and in the current period recorded the sale of its consumer products division to Johnson & Johnson for $16.6 billion. For 2006, Pfizer raised its forecast for adjusted profits to $2 a share from its most recent projection of about $1.93 a share, with actual EPS of about $1.60 a share.

Pfizer shares (NYSE: PFE) gained 41 cents, or 1.76%, to $23.71.

New River floats deal at mids

Back to primary action, New River Pharmaceuticals Inc. priced its $125 million of seven-year convertible subordinated notes to yield 3.5% with a 25% initial conversion premium - at the middle of talk, which put the coupon at 3.25% to 3.75% and the initial conversion premium at 22.5% to 27.5%.

Ahead of pricing, the deal was seen in troubled waters because of such a limited stock borrow, which was seen as a tough sell for hedge funds and just interesting enough for outrights.

After pricing, New River shares (Nasdaq: NRPH) dropped $1.76, or 6.4%, to $25.75.

Equity market sources had said the deal was first seen as a boon to stockholders because of the stock buybacks, but that enthusiasm waned quickly since $40 million of the $50 million in proceeds designated for stock buybacks was earmarked to buy shares back from participants in the bond sale.

New River is a Radford, Va.-based specialty drug maker.

Connetics sweetens bond offer

Elsewhere with a convertible twist, Connetics Corp. shares got a bounce Thursday after the company made a sweetened deal to avert bond payment accelerations, but some onlookers expect at least one of the two convertible issues will have to be paid off in full soon.

Analysts said that while the company's offer to holders of its two convertible bond series would be dilutive to stockholders, it would be a relief to avoid the cash outlay to repay the bonds in full if they were pushed back to the company.

Connetics shares (Nasdaq: CNCT) on Thursday added 20 cents, or 2.44%, to $8.41.

The company disclosed a sweetened offer to bondholders after Wednesday's close.

Another relief to the stock overhang was Connetics' comment that it believes the cumulative net impact of its accounting restatements - understated rebate reserves, charge-back reserves and allowance for returns up to Dec. 31, 2005 - is around $11 million. At the least, one sellside analyst said it was a comfort to have a number on the event, removing significant uncertainty about the magnitude of the situation.

Moreover, some analysts see very little downside ahead for Connetics stock at current levels, and probably significant upside even in the absence of product approvals.

Connetics convertible

Convertible bondholders could accelerate the maturity of the 2.25% notes due 2008 and 2% notes due 2015 because Connetics is delinquent in filing financial reports with the Securities and Exchange Commission. The delay in filing is related to the restatements that the company has estimated will reduce revenue by $11 million.

"We do not believe that Connetics would be offering incentives to noteholders if the company believed it could file before the July 29 deadline," said RBC Capital Markets analyst Ken Trbovich in a report Thursday. "As such, we believe the most likely scenario is that the company pays the 2015 noteholders $200 million and makes $4.5 million in payments to 2008 holder for their consent to the waiver."

The $200 million 2% convertible due 2015 has a par put that could be triggered by the filing non-compliance. The 2.25% convertible due 2008 is a $90 million issue.

With $260 million-plus in cash on the balance sheet, this payment is financially feasible, Trbovich said, but the company needs operating cash, too.

Palo Alto, Calif.-based Connetics is a specialty pharmaceutical company.

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