LifeCell lower; CV Therapeutics loses 2%; Indevus up; Tercica off by 8%; Amarillo Biosciences off

By Ronda Fears

Memphis, July 7- Biotech stocks seesawed Friday before settling the week on lower ground, joining the negative tide in the broader market, as players exhibited an elevated level of risk aversion ahead of the upcoming quarterly reporting season.

"The Street looks very despairingly at the biotech sector these days," said a hedge fund source in Chicago. "They have nothing but a lot of risk, and everyone is just a little squeamish about risk right now."

Par Pharmaceutical Cos. Inc., however, was on the rebound after hitting a new five-year low Thursday on news it will restate financial results back to 2004. Initially, the company said it expected revenue to be adjusted downward by $55 million and a "material" yet-undefined impact to earnings. Because of the restatement, the company said it would delay filing second-quarter results.

Following a 26% decline on the news there was buying in the stock Friday, which mirrored purchases of the Par Pharma convertible bonds a day before partly on the thinking that the delay in financial filings might trigger a par put on the issue. Par Pharma shares (NYSE: PRX) added 74 cents, or 5.49%, to settle Friday at $14.21.

Concerns about risk, however, pushed Tercica, Inc. into a big slide, extending losses from earlier in the week amid confusion over the status of a patent dispute with Insmed, Inc. over their respective drugs to treat growth hormone deficiency in children - Increlex for Tercica and Iplex for Insmed. Both were off earlier in the week on an update on the dispute, which is scheduled to go to trial in November.

"Mr. Market believes in Insmed," said a trader when asked about the decline in Tercica on Friday.

Tercica shares (Nasdaq: TRCA) dropped 41 cents on the day, or 8.35%, to close at $4.50. On the other hand, Insmed shares, (Nasdaq: INSM) were higher, albeit by just a penny, at $1.29.

Another biotech of note in trade Friday was Nektar Therapeutics (Nasdaq: NKTR), which dropped 38 cents, or 2.16%, to $17.19, on news of a patent suit settlement.

Nektar said Friday that it and the founder of a company acquired five years ago settled a patent suit for $25 million brought by the University of Alabama in Huntsville. The university had filed the suit against the company and Milton Harris, who previously worked at the university. In 2001, Nektar bought a business founded by Harris for $197 million. The university sued Harris and Nektar claiming that Harris' patents were university property.

Under terms of the deal, Nektar paid $11 million to the university, Harris paid $4 million and Nektar will pay the school $1 million a year for 10 years.

LifeCell run spurs profit taking

After a series of new highs, the last one this past Wednesday, in conjunction with some window dressing purchases the week before, players said LifeCell Corp. took a hit on profit taking Friday, but with buying interest remaining high in the story there were huge swings throughout the session.

"It was a wild day for LifeCell," a sellside trader said. "There were a lot of big sellers, but a lot of big buyers, too, so it was crazy."

With no news from the company on the tape Friday, LifeCell shares (Nasdaq: LIFC) traded in a band of $27.94 to $31.85 before it ended the day off by $2.61, or 8.2%, at $29.20. Some 3 million shares traded, versus the norm of 739,029 shares.

"I consider this a red flag, with such high unusual volume on a quiet summer day. Shares short increased in April 2006 to 5.5 million and are only at around 5.3 million. Only 200,000 net shares bought to cover since April. I would think that would give this price some serious support. We will see," said a buyside source in Boston. "I am smelling somebody amiss. Hence, I sold some now and am looking for another time for re-entry after this is revealed."

In April, LifeCell shares took off on first-quarter results that beat Wall Street estimates and a bump to its 2006 outlook; over the past two weeks, the stock has hit three new 52-week highs - the latest $32.60 on Wednesday.

"The cause of selling today can be based on several things," said the sellside trader. "People who did some window dressing for quarter end could be selling positions back after shorting the stock. In any case, I expect when the selling pressure abates we will see higher prices. The story line and the fundamentals on LifeCell have not changed. This morning would have been a good buy in point or add to current position point."

With LifeCell expected to be reporting second-quarter results in the next couple of weeks, however, the buysider said the sentiment is more cautious than confident.

"It's been hard to figure out these wild swings that LifeCell has been taking over the past few months. I have been watching with interest and might still get back in, but it's a crap shoot. I like the company, but can't figure why it moves the way it does," the buysider said. "And I still say there are a lot of jittery LifeCell holders out there, which can make a small move down turn into a big move down real quick, which may be what's happening today."

CV Therapeutics off on nerves

CV Therapeutics, Inc. said Friday that safety monitors have recommended a late-stage study of its angina medication continue to completion, but traders said any gain on the news was stifled by concerns about upcoming financial results.

"Market technicals are indicating another leg down probably starting next week," or in advance of the company's second-quarter report, one trader said. "If you missed CV Therapeutics in the mid $12s you may get another shot."

He noted that the stock saw two consecutive days of sinking to a new 52-week low last week, and "more and more we are hearing that the expectations for second quarter are not looking that great."

CV Therapeutics shares (Nasdaq: CVTX) closed lower by 32 cents, or 2.37%, at $13.19.

Palo Alto, Calif.-based CV Therapeutics said the study hopes to show that Ranexa can be used as a front-line treatment for angina, or chest pains caused by a lack of oxygen-rich blood flowing through the heart. Ranexa was approved by the Food and Drug Administration as a second-line angina treatment in January and hit the market in March.

CV Therapeutics expects to begin releasing data on the study, which has enrolled more than 6,500 patients, in early 2007.

Indevus lifted on news, signals

Indevus Pharmaceuticals Inc. was lifted, however, Friday on news that a second late-stage clinical trial for its extended-release overactive bladder treatment, Sanctura, backs efficacy data from an earlier study.

Lexington, Mass.-based Indevus in mid-June released similar results from a phase 3 study. The company plans to seek Food and Drug Administration approval for Sanctura by the end of the year.

Indevus shares (Nasdaq: IDEV) gained 9 cents on the day, or 1.62%, to close at $5.65.

In addition to the news, a market source said that recent purchases of Indevus shares by the likes of Quogue Capital LLC, which converted $13 million of convertible bonds, and OrbiMed Advisors LLC affiliates was a source of enthusiasm, along with recent options activity. In recent Securities and Exchange Commission filings, Quogue reported a 5.77% stake in Indevus and OrbiMed a total 7.55% position.

Indevus has a 6.25% convertible bond due 2008 in play.

"Those [increased holdings] are pretty impressive," the market source said. He added, "Looking at the option trades over the last few days, I say we're going up. If Pagoclone [for stuttering] turns out to be real, this stock is worth $20 only on Pagoclone. We could have a homerun here."

In addition to Sanctura and Pagoclone, Indevus has Nebido in phase 3 trials for male hypogonadism, PRO 2000 in trials for the prevention of infection by HIV and other sexually transmitted pathogens; IP 751 in a phase 2 trial for interstitial cystitis and Aminocandin in a phase 1 trial for systemic fungal infections.

Amarillo Biosciences eyes deal

Back to the down side, news of a new deal from Amarillo Biosciences, Inc. pushed that stock lower Friday even though the funds would be earmarked for studies related to the popular niche space of bird flu.

Amarillo Biosciences said Friday that it has retained RiverStone Wealth Management LLC to conduct a private placement of stock to fund a study on influenza in chickens. The study will determine the effectiveness of oral interferon alpha against flu in chickens, the company said.

Amarillo Biosciences shares (OTCBB: AMAR) closed the day off by 2 cents, or 2.3%, at $0.85 - the day's low, after hitting an intraday high of 90 cents.

Separately, Amarillo Biosciences submitted an Investigational New Drug application to the FDA to study orally delivered interferon alpha in patients with idiopathic pulmonary fibrosis.

Amarillo Biosciences, based in Amarillo, Texas, is a biotech company focused developing interferon used to treat a variety of diseases, including Sjogren's syndrome and HIV.

Sheri Kasprzak contributed to this article.

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