Encysive plunges 40%; Momenta gains 38%; Nastech rises; Enzon up; Connetics firms

By Ronda Fears

Memphis, July 25 - Encysive Pharmaceuticals Inc. took another nosedive Tuesday after yet another delay in Food and Drug Administration approval of its pulmonary arterial hypertension drug Thelin, which has been approved in Europe.

In general, traders said there were still many biotech players sitting on the sidelines waiting for the second-quarter reporting flows to die out. But there was still heavy flow in names with news on the tape.

On Encysive specifically, a New York-based fund manager said, "It rarely pays to try to make quick trades on these stocks because they are generally news event driven and as soon as you sell, they begin to recover much faster than other sectors. You need to have a six- to 12-month time frame."

After three setbacks for Thelin in the U.S. in as many months, the stock has lost about a third of its value, even counting a spike of more than 36% in early June when Thelin was approved in Europe. On Tuesday, Encysive shares (Nasdaq: ENCY) fell $2.49, or 40.29%, to $3.69, with enormous volume of 18.8 million shares versus the norm of 2.44 million shares.

"Most importantly," the buysider continued, "the more negativity, pessimism, management bashing and shorting there is, the faster the stock recovers when the positive news events hit the wires. In this case, that news event that we are all waiting for could come at any time.

"I wouldn't distrust Dr. Given [Encysive chief executive Bruce Given] because he has been tight-lipped. When the good news comes from the FDA, we will understand why he was tight-lipped and it will have been worth the wait and the benefit of the doubt that you feel after a day like today. I bought more this morning and haven't sold a share, but I have the experience and the patience to see this through to the final approval."

In a statement issued late Monday, Houston-based Encysive said it was informed by the FDA that there was still one unresolved item as a matter of judgment and expressed an openness to consider new arguments to address this, including possible further clinical trials. Encysive has been trying to avoid more trials but said the FDA made recommendations on its risk management plan that were "constructive."

Myogen, Inc., which also has a pulmonary arterial hypertension drug in development, Ambrisentan, shot up on the Encysive downer. Myogen shares (Nasdaq: MYOG) gained $3.76 on the day, or 13.3%, to $32.03.

Genentech, Inotek boost hope

Hopes of deals got a nod of confirmation Tuesday, traders said, when biotech giant Genentech, Inc. announced a deal worth upward of $425 million with private DNA-focused biotech Inotek Pharmaceuticals Corp. to develop PARP inhibitors for cancer.

Beverly, Mass.-based Inotek's lead program is focused on blocking the nuclear DNA repair enzyme, poly polymerase (or PARP), which is a nuclear enzyme within cells that directs the repair of damaged DNA via the activation and recruitment of DNA repair enzymes. In addition to cancer, the company said it also has cardiovascular applications.

Genetech shares (NYSE: DNA) gained $1.64 on the day, or 2.04%, to end at $82.01.

Under the agreement, Genentech will make an upfront payment of $20 million to Inotek with the potential for up to $405 million in milestone payments.

"This is big for small biotechs," said a sellside trader.

Momenta inks stock deal

In another deal that boosted hope of increased collaborations, Momenta Pharmaceuticals, Inc. inked an equity transaction worth roughly $263 million with the Novartis AG unit Sandoz to develop generic versions of established drugs.

The deal takes the form of an equity investment from Sandoz totaling $75 million, for which it will receive 4.7 million Momenta shares at $15.93 - a 30% discount to the trailing 30-day average stock price. Momenta could get another $188 million in milestone payments.

Momenta shares (Nasdaq: MNTA) gained $4.97, or 38.08%, to $18.02. Novartis shares (NYSE: NVS) slipped 53 cents, or 0.95%, to $55.44.

"I like this, don't get me wrong, and am keeping a position" in Momenta, said a buyside trader. "But this was a bit of an over-reaction to the news if you ask me. I mean, Novartis got a 30% discount; that seems pretty desperate if you ask me. So, I took a little off the table."

Overall, though, traders said buyers outnumbered sellers on the news.

"This is exactly what we were hoping for once the earnings season was under way," the buysider continued. "It wasn't a huge surprise, which is why I am surprised with the big price move."

Drugs covered in the agreement are M-Enoxaparin, a technology-enabled generic version of the blood-thinner Lovenox, and four compounds that were not specifically identified. The two companies will jointly develop, manufacture and commercialize all of these candidates and share in sales under separate profit share arrangements for each product, including an equal profit split M-Enoxaparin.

Nastech sees selling into rally

Another gainer Tuesday was Nastech Pharmaceutical Co. Inc. on news that it has been granted a patent relating to the treatment of obesity through the use of its Peptide YY, a naturally produced hormone associated with the modulation of appetite in the brain, the company is developing in a nasal spray.

One buysider in Connecticut said he was selling into the rally, as his research department is expecting Nastech's financials to dampen enthusiasm on the story. Nastech is slated to report second-quarter results Aug. 2.

Nastech shares (Nasdaq: NSTK) added 77 cents, or 6.29%, to $13.02.

"It's been on the slide and will continue, [there's] no positive income, insider sales, and FDA rejection after another," the buysider said.

"Our research guy has a joke about this one: 'What do cocaine and Nastech have in common? Both are expensive, both send stuff up your nose.' By the way, all is not lost unless Nastech breaks $12; then even the true believers will start bailing. Nastech will likely be successful at some point, possibly years ahead. There are lots of other biotechs closer to the finish line."

Enzon gets expanded label

With so much negative regulatory action on the wires, a positive angle for Enzon Pharmaceuticals, Inc. provided a nice bounce after news that the FDA had approved an expanded label for its Oncaspar as a first-line drug for the blood cancer acute lymphoblastic leukemia.

Enzon shares (Nasdaq: ENZN) rose 28 cents, or 3.64%, to $7.98.

"They are delivering on schedule," said a sellside trader. "A little more good news on earnings will add real support."

The company announced that the FDA has approved its supplemental Biologics License Application for its oncology product Oncaspar for use as a component of a multi-agent chemotherapeutic regimen for the first-line treatment of patients with acute lymphoblastic leukemia. Oncaspar had previously been indicated for patients with A.L.L who require L-asparaginase in their treatment, but developed hypersensitivity to the native forms.

Enzon is slated to report second-quarter results Aug. 1.

Connetics lifted on filing

As previously guided from Connetics Corp., its restatement of financials back to 2001 resulted in a writedown of revenues and earnings, but the filing - in part to avoid further consent payments for its 2.25% convertible notes and the acceleration of its 2% convertible notes - took a huge amount of overhang off the stock.

Connetics shares (Nasdaq: CNCT) gained 56 cents on the day, or 6.36%, to $9.36.

Cumulatively, the company said the impact from the restatements cut $11.1 million in revenue and $10.8 million off net income between 2001 and 2005. The restatement is the result of errors in accounting for accruals of estimated product-related rebates, chargebacks and returns. But the company said it swung to a profit in first-quarter 2006, and the filing update means it won't have to make additional payments to holders of its convertible bonds to avoid having that debt accelerated.

For 2005, the restatement reduced net income by $7.8 million to $26.1 million, or 70 cents a share, and lowered revenue by $7.9 million to $176.4 million. For years 2001 to 2004, net income was reduced by $3 million and revenue lowered by $3.2 million.

For first-quarter 2006, Connetics net income totaled $1.1 million, or 3 cents a share, compared with a loss of $944,000, or 3 cents a share, in the year-ago period, while revenue increased to $47.1 million from $40.4 million.

Sigma-Aldrich seesaws

Sigma-Aldrich Corp., a chemicals supplier to biotech research labs, on Tuesday posted higher second-quarter earnings and boosted its 2006 guidance. The stock was higher ahead of the news, a trader said, but the stock took a dive after-hours on profit taking.

"Earnings ought to be a knockout," said a sellside market source ahead of the closing bell. Afterward, when asked about the after-hours drop in the stock, he said, "There is no reason for this other than maybe some profit taking. That's all I could reason."

Sigma-Aldrich shares closed up by 31 cents, or 0.44%, at $70.85 but in after-hours trading lost $1.60, or 2.26%, to $69.25.

St. Louis-based Sigma-Aldrich posted net income was $70.3 million, or $1.04 a share, compared with $62.5 million, or 91 cents a share, in the year-ago quarter while revenues gained to $448.5 million from $444 million.

The company said it now expects 2006 earnings in the range of $3.90 to $4 a share, up 10 cents a share from its previous forecast. Also Tuesday, the company said it has expanded its lentiviral shRNA gene family sets.

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