Encysive spikes, slips to red; SkyePharma still looking for buyer; Pharmacyclics sinks

By Ronda Fears

Memphis, Aug. 11 - Despite disappointing news on the buyout front earlier in the week from ImClone Systems, Inc., biotech players were heartened Friday somewhat by word from SkyePharma plc that it was continuing and is hopeful in its efforts to sell key assets to turn the London concern around.

Meanwhile, Encysive Pharmaceuticals, Inc. traded sharply higher Friday on news that it received a formal letter of approval for its pulmonary arterial hypertension drug Thelin in Europe, but snapped back to end the day in the red.

Encysive shares (Nasdaq: ENCY) opened around 8% higher and went to $4.57 intraday but settled lower by 21 cents, or 5.07%, at $3.93 amid heavy volume with roughly 7 million shares traded versus the norm of slightly under 3 million shares.

"Traders are trying to buy these shares at a cheap price. They will try to keep the price as low as possible to make people believe that the stock won't move much higher despite great news such as European approval," said a buyside market source in Boston.

"Some people will sell their shares buying into this notion. Then, when all the shares are bought out for a cheap discount, the real news will come, along with all the upgrades and the buying. The dealers will start selling their shares for a premium, a lot higher price since, no one will want to sell at that point for cheap. Then you will see the stock move."

A trader defended the slide into negative territory as more short selling on negative sentiment for Encysive's chances of getting approval for Thelin in the United States, however.

"When the stock failed to rally big on the EU news, the shorts got encouraged and jumped the stock - not covering, but shorting even more. This turned the tide of the rally and longs began selling, selling in disgust, or whatever," the trader said.

"The cycle fed on itself all day until we closed on the low of the day, or near to it. Now the shorts are locked in until news from the FDA [Food and Drug Administration]. Personally, I don't like the chances for the shorts."

SkyePharma stock soars by 9%

SkyePharma stayed on an upward path to end at the day's high after saying early Friday that the recent decline in its stock price was disappointing but it is not aware of any fundamental reason for the decline, and that it is pursuing a sale of at least one unit and possible other assets.

After a mid-morning spike, SkyePharma shares in the United States (Nasdaq: SKYE) closed out at $4.56, gaining 39 cents on the day, or 9.35%. By Thursday's close the London biotech and drug concern's stock had lost more than 20% since Aug. 1 and more than 50% since the start of 2006. In the United Kingdom, SkyePharma shares (London: SKP) ended Friday higher by 1.75p, or 7.78%, at 24.25p.

"We are disappointed by the fall in our share price over the past few weeks," said chief executive Frank Condella in a statement.

Condella was appointed CEO in February as part of a management shake-up, which also saw the departure of founder and former chairman Ian Gowrie-Smith amid pressure from shareholders and after SkyePharma failed to solicit any takeover bids for the entire company.

"We are continuing our efforts to deliver on the strategy outlined earlier this year to divest our injectables unit and to out-license Flutiform [for asthma and chronic obstructive pulmonary disease, or COPD] outside the U.S. and we remain confident that we will be able to achieve these objectives. We are pleased by the support of our major shareholders who have maintained their shareholdings during this period," Condella said in the statement.

The phase 3 trial of Flutiform is on track for filing for approval with the Food and Drug Administration in the second half of 2007, the company noted.

KOS Pharmaceuticals, Inc. has a licensing agreement with SkyePharma to jointly develop Flutiform. KOS Pharma shares (Nasdaq: KOSP) on Friday added a nickel, or 0.11%, to settle at $44.42.

SkyePharma sees year-end sale

A key to the jump in SkyePharma shares, players said, was its target of getting something resolved on the sale of the unit and/or assets by year-end.

SkyePharma said discussions are continuing with companies interested in buying the injectables unit as well as with certain companies that have expressed an interest in buying its DepoBupivacaine product, which is an extended-release version of the anesthetic bupivacaine, or other assets.

"The company is progressing with several options, all of which are geared toward bringing in cash and reducing the ongoing cash burn," SkyePharma said in a statement Friday, adding that it continued to expect to complete a transaction before the end of the year.

SkyePharma said it will provide an update on its long-term strategic plan and other projects in development after a planning meeting in September.

Pharmacyclics drops over 3%

Further on a buyout angle of sorts, Pharmacyclics, Inc. announced the termination of its poison pill, effective Aug. 18, but contrary to expectations that it would prop up the stock, the shares dipped.

"The stock should fly on this news," said a buyside observer. "It says the company is now inviting takeover bids."

Pharmacyclics shares (Nasdaq: PCYC) instead dropped 13 cents on the day, or 3.1%, to close at $4.07.

The Sunnyvale, Calif.-based biotech announced Friday that its board of directors approved the termination of its stockholder rights plan, commonly referred to as a poison pill, which was originally scheduled to expire on April 30, 2007 and amended to accelerate to Aug. 18.

On Wednesday, the company had announced the appointment of James L. Knighton and Christine A. White to its board of directors, increasing the board to eight from six. Knighton was also appointed to the audit and nominating and corporate governance committees and White to the compensation and nominating and corporate governance committees.

"Knighton and White both bring valuable relevant experience to Pharmacyclics at a critical time, as we prepare for a New Drug Application filing and potential commercialization of Xcytrin," said Richard Miller, chief executive of Pharmacyclics, in a news release.

Knighton was chief operating officer and chief financial officer of Caliper Life Sciences, Inc. from 2002 to 2004 and from 1998 to 1999 was CFO of Sugen, Inc. until its acquisition by Pharmacia. Also, Knighton held various positions at Chiron Corp. from 1994 to 1998 and before then was at DuPont Merck. He currently is the president and co-founder of AvidBiotics Corp., a private biotech.

Pharmacyclics is focused on treatments for cancer, atherosclerosis and other diseases. Its first commercial effort, Xcytrin, is an anticancer agent designed to target cancer cells and, by disrupting cell metabolism, kill those cells through a process known as apoptosis. The company also has Antrin angiophototherapy in phase 1 clinical trials to treat hardening of the arteries, or atherosclerosis.

ImmunoGen drops over 3.5%

Earnings were a disappointment for ImmunoGen, Inc. players, but one sellsider said the sell-off in the stock Friday was more of a matter of patience running thin on the story.

"The bottom line is 2006 is another year gone by that their drug does not enter a phase 2 trial. Without this, we will be sitting and watching the market value of the company go nowhere. The street will not get burned again on this stock until they can deliver the goods," said a buyside source.

"Once again we have to wait until 2007 to see any forward movement in trials. If they go into a phase 2 in 2007, it has taken eight years to get to that point since the first trial. If you look at other company trials, they reach phase 2 in 1.5 to 2.5 years. That means ImmunoGen is 5.5 years behind schedule."

After the earnings, some sellside shops reiterated their position on the stock, including RBC Capital Markets keeping a sector performer rating with speculative risk.

ImmunoGen posted a fiscal fourth-quarter net loss of $6.6 million, or 16 cents a share, widened from a loss of $2.7 million, or 7 cents a share, a year before while revenue grew to $5.7 million from $4.7 million. For fiscal 2006 ended June 30, the company lost $17.8 million, or 43 cents a share, compared with a loss of $11 million, or 27 cents a share, in fiscal 2005 as revenue gained to $21.8 million from $18.4 million.

RBC analyst Jason Kantor in a report Friday said that while there is risk with the ImmunoGen story, he sees some news flow coming within the next six to 12 months.

"We continue to view Immunogen as a relatively low risk antibody company given its low cash burn and diversified portfolio of proprietary and partnered programs," Kantor said in the report. 'We expect ImmunoGen and its partners will advance their current clinical programs and potentially initiate one or more new clinical programs over then next 12 months."

ImmunoGen is a Cambridge, Mass., biopharmaceutical company.

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