Adolor up on heavy volume after deal; Avigen sinks; Biogen, Elan react to Tysabri news; Onyx slips

By Ronda Fears

Memphis, Feb. 16 - Biogen Idec Inc. and Elan Corp. plc stocks were finding it hard to react to the news that the Food and Drug Administration will allow them to resume clinical study of Tysabri in patients who have already received the drug, traders said.

Biogen shares were very active and higher by 3.5% on the Cambridge, Mass.-based biotech's earnings, traders said, and shorting activity limited gains for Elan.

Biogen and Elan can resume use of the MS drug Tysabri in patients who had already been participating in the drug's trials, but the FDA said it "remains very concerned" and will consider in March if widespread use of Tysabri may begin again.

Onyx Pharmaceuticals, Inc. also was seeing mixed reactions to drug trial news and its earnings. Onyx and Bayer AG announced Thursday they had begun a phase 3 non-small cell lung cancer trial studying Nexavar in combination with chemotherapy drugs, which itself got a mixed reaction. Then, at the close, Onyx reported fourth-quarter results showing a much wider net loss than a year ago and no revenues.

Analysts' reactions to the Onyx and Bayer endeavor were skeptical. Onyx and Bayer plan a phase 3 clinical trial studying Nexavar tablets in combination with carboplatin and paclitaxel in patients with non-small cell lung cancer.

"Because [Genentech, Inc.'s] Avastin is the only drug to have shown a benefit in combination with doublet chemotherapy in front-line NSCLC [non-small cell lung cancer], and there is limited evidence of Nexavar's benefit in combination with doublet chemotherapy in front-line NSCLC, we believe the trial has significant risk," said Merrill Lynch analyst Eric Ende in a report Thursday. He has a neutral rating on Onyx stock.

Onyx shares dropped Thursday and again in after-hours activity as the company reported fourth-quarter results at the close. Onyx reported a net loss of $38.4 million, or $1.00 per share, for the fourth quarter, compared with a net loss of $14.2 million, or $0.40 per share, for the 2004 quarter. Onyx posted no revenue, versus $500,000 of revenue for fourth-quarter 2004. Onyx shares (Nasdaq: ONXX) lost 23 cents, or 0.8%, to close at $28.53 and were seen later off by another 23 cents, or 0.81%, to $28.30.

Adolor continues northward

Adolor Corp. priced a follow-on offering of 5 million shares of common stock off the shelf at $25.00 per share, discounted slightly from Wednesday's closing level of $25.19, and speculation after the deal was that Adolor shares would stutter, but it resumed its northward climb.

Adolor shares (Nasdaq: ADLR) gained 38 cents Thursday, or 1.51%, to $25.57 amid heavy volume with 2.3 million shares changing hands compared with the three-month running average of 585,927 shares.

Exton, Pa.-based Adolor, which concentrates on pain medications, has its lead product candidate Entereg under development with GlaxoSmithKline plc to treat pain related to bowel resection surgery and is looking to fund late stage trials on the drug.

"This stock keeps going up because Entereg has legitimized it. I love all the people that are looking at earnings and P/E [price to earnings] ratios with a startup biotech," said a buyside market source.

"Go buy Proctor & Gamble if that's how you play the market. These startups are all about potential and pipeline. Adolor has a lot of both and the value has just started to be realized. We will pause for a while here but then climb higher as we come closer to approval."

Avigen dips on 4Q results

Avigen, Inc. took a tumble Thursday on its fourth-quarter report, although the company said it achieved several important milestones last year and sees significant progress coming this year.

For fourth quarter, Avigen reported net income of $7.1 million, or $0.34 per share, compared with a net loss of $5.7 million, or $0.28 per share, for the fourth quarter of 2004. Revenue dropped to $12 million from $35 million, and the fourth-quarter revenue was mostly due to a payment from Genzyme Corp. in connection with the divestiture of Avigen's gene therapy assets.

Avigen shares (Nasdaq: AVGN) lost 16 cents on the day, or 3.02%, to $5.14.

On the dip, however, there were some players looking to add to positions. One buyside source referred to Avigen as "a good turnaround story."

Avigen chief executive Kenneth G. Chahine said "2005 was a watershed year for Avigen" as it exited from gene therapy, reduced cash burn and expand its pipeline."

"Our accomplishments have generated considerable momentum as we focus on moving forward with our portfolio of small-molecule drug products for serious neurological and neuromuscular diseases," including Parkinson's disease and hemophilia, he continued. "We expect 2006 to be a significant year in which we get back into the clinic with multiple product candidates."

Avigen funded for three years

Avigen officials said the company is well funded for about three years, but at some time in the future will seek to raise additional funding through public or private equity financing, when market conditions allow, or through additional collaborative arrangements with partners.

"As a company our size without revenues, we have strategically built our pipeline with products that have attractive markets that carry lower development risks," Chahine said on the company's conference call.

"Drug development is difficult and uncertain. Avigen has put itself in a good position to succeed. So, not only do we have an attractive product pipeline, we've got the cash to fund the development of those products through phase 2 and a strong management team."

At Dec. 31, Avigen had $70 million in financial assets, including cash, cash equivalents, available-for-sale securities and restricted investments.

"What they forgot to mention on the conference call was the potential U.S. market for AV650 [in development for neuromuscular spasm and spasticity]," said another buyside market source. "They mentioned it at the BIO conference [BIO CEO and Investor Conference in New York] on Tuesday and said it was approximately a $1.6 billion market and at brand prices closer to $5 billion. That is an important statement for a small company like this. Of coarse it's all potential market."

Avigen also has two candidates for neuropathic pain, AV411 and AV333. Additionally, the company has in development AV513 - a compound for the treatment of hemophilia A and B, or any blood-clotting disorder.

Biogen up on earnings, Tysabri

Biogen Idec Inc. rose sharply Wednesday after reporting profits that nearly doubled in fourth-quarter and the prospect of the multiple sclerosis drug Tysabri returning to the market. Its partner on Tysabri, Elan Corp. plc, however, saw a more modest gain on the Tysabri news.

Cambridge, Mass.-based Biogen forecast 2006 earnings, excluding items, of $1.95 to $2.10 per share, which does not include the impact of expensing stock options estimated at about 6 cents to 9 cents per share but does anticipate Tysabri's return. Biogen and Elan suspended sales of Tysabri in February 2004 due to safety concerns and later Biogen announced a 17% cut in its workforce.

Biogen reported fourth-quarter net profit rose to $56 million, or 16 cents per share, from $28.7 million, or 8 cents a share, a year ago. Revenue grew 8% to $633 million, spurred by a 12% rise in sales of Avonex, another MS drug.

Shares of Biogen (Nasdaq: BIIB) gained $1.61, or 3.52%, to $47.33 on heavy volume with 6.5 million shares traded versus the three-month running average of 2.9 million shares.

Biogen said it was in talks with European regulators about resuming Tysabri trials there as well as the United States., where an FDA advisory panel is set to discuss Tysabri at meetings on March 7 and March 8.

Analysts less bullish on Biogen

Biotech analyst was more skeptical of the Biogen news, however.

"Tysabri's return could help EPS growth from 2006 to 2008, but we believe The Street has not fully realized the potential adverse impact from the loss of ex-U.S. Rituxan [B-cell non-Hodgkin's lymphoma drug] royalties in mid-2009 and approval of a second generation Rituxan with its change to the profit split with DNA [Genentech, Inc.], which could dramatically reduce future EPS and growth," Merrill Lynch analyst Eric Ende said in a report Thursday.

But, Ende said the focus will remain on the sBLA [supplemental Biologics License Application] for Rituxan in rheumatoid arthritis and Tysabri for MS and while Biogen stock may be catalyzed by positive outcomes for these near-term events he thinks the stock is pricing in nearly 100% probability of positive outcomes in both events.

Jefferies & Co. analyst Adam Walsh tended to agree.

"We do not believe yesterday's [Wednesday] rally was warranted, since in our view, the FDA essentially signaled that it believes the Tysabri safety profile would be most appropriately defined in the context of controlled clinical trials," Walsh said in a report Thursday. "This does not appear to be entirely consistent with Street expectations for Tysabri approval."

Biogen shares gained about 3% Wednesday on the Tysabri news.

Elan stock settles unchanged

Elan shares were unchanged Thursday after adding about 4% on the Tysabri news the day before, and traders said the difference vis-à-vis to Biogen illustrated that the Tysabri news was a small portion of the gains, with Biogen moving more on its earnings. Particularly, traders and analysts point out that Tysabri is a bigger issue for Elan than Biogen because Biogen has many other drugs in development while Elan has far fewer alternatives to boosting revenues.

A buyside market source said that because of options expiring Friday and what he thought was a rather stilted reaction to the FDA's take on Tysabri returning to the market, there was considerable shorting in Elan shares, which would suggest many think the stock is headed south.

"Based on this morning's volume and price activity, I believe strongly that the option writers will be shorting the heck out of ELN through tomorrow [Friday] to keep the price from breaking $15 before Tuesday," the buysider said, adding that he is bullish on the Elan story. "If you believe that, you should also believe that today is an incredible buying opportunity. In summary, I'm in a pretty good mood right now."

Citigroup biotech analyst Andrew Swanson said in a report Thursday, "Elan's current valuation implies Tysabri returns to market and emerges as the market leading MS therapy - an optimistic scenario in our view." He maintained a sell rating on Elan stock.

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