Neurocrine, DOV fall on Pfizer nixing indiplon funding; Endo rises 10%, Penwest gains 37%

By Ronda Fears

Memphis, June 23 - Traders lamented a lack of conviction in the rise of the broad biotech indexes Friday as several bits of pleasing news failed to counteract a string of negative items on the tape, perhaps the biggest of which was Pfizer, Inc. pulling out of what's proving to be an uphill battle in Neurocrine Biosciences, Inc.'s efforts to get approval for its new sleeping pill indiplon.

DOV Pharmaceutical, Inc., which licensed indiplon to Neurocrine in 1998, has a royalty stake in sales of the drug and fell in sympathy with Neurocrine.

"The gutlessness in this market is astounding," said a sellside trader, complaining of light volume outside of the names moving on specific news or events. "It feels like a sucker rally, and then next week everyone gets hammered when the Fed [Federal Reserve] raises rates."

There were some nice moves upward on solid news, though, the trader conceded. For example, Endo Pharmaceuticals Holdings Inc. and partner Penwest Pharmaceuticals Co. surged on news that the Food and Drug Administration had approved two forms of their painkiller Opana.

Neurocrine plummets 29%

Big Pharma Pfizer, with its deep pockets, has pulled the plug on its involvement in the indiplon program and Neurocrine Biosciences took a huge hit along with developer DOV, but traders said there were buyers showing up of the mindset that there will be another partner emerge.

Late Thursday, Neurocrine announced that Pfizer was returning all rights of indiplon back to Neurocrine, but Neurocrine said it will continue to develop indiplon and that Pfizer will support the company for the next 180 days.

Still, Neurocrine shares (Nasdaq: NBIX) fell another $3.96, or 28.67%, to settle Friday at $9.85. In May when the first setback for indiplon surfaced at the FDA, at dosage levels that would make it more competitive in the marketplace, Neurocrine shares were trading at around $55 a share.

Pfizer has supported the research program for indiplon and was to market the drug, giving a portion of the profits to Neurocrine, which would in turn distribute royalties to DOV Pharmaceuticals. Pfizer shares (NYSE: PFE) closed Friday off a penny at $22.64.

"Neurocrine appears to have enough cash to continue developing indiplon and, besides, I think eventually another marketing partner will turn up," said a biotech fund manager in Boston. "The big drawback is that they don't really have anything in their pipeline to carry them through this valley. This has happened to other biotechs [Amylin Pharmaceuticals, Inc., for one, with its symlin diabetes drug] and they have survived. I think Neurocrine will too."

Last month, the FDA said that Neurocrine's high-dose extended-release form of indiplon was not approvable, but two lower-dose immediate-release forms were approvable.

DOV shares shed another 3%

DOV Pharmaceutical is a promising biotech on the haircut it has taken on the indiplon event, the buysider said. DOV shares (Nasdaq: DOVP) lost 6 cents on Friday, or 2.78%, to close at $2.10.

"This delay was already factored into [our] price target," the Boston fund manager said, noting DOV shares were in the $8 area when the indiplon news came down the pike in April.

"How does Pfizer's pull-out have any effect on DOV? Neurocrine is committed to continuing development of indiplon, [and] likely to be aided by a new development partner.

"My guess is this latest news is shaking out the weak hands of the retail investor and when the dust settles we'll find that DOV is significantly oversold and the rebound will begin. We're trading below cash; DOV has enough operating capital for a couple years, at least. Bankruptcy is coming no time soon. Unless they greatly increase their [cash] burn rate, bankruptcy is not even on the table in a year's time."

Moreover, he said he believes in DOV's pipeline, particularly its painkiller bicifadine, even though there was a negative bent to the company's analysis of a phase 3 trial for lower back pain last month. DOV said it will continue the phase 3 trial, amending part of it by enrolling only patients who meet the subgroup criteria of severe pain or sciatica. Another part of the trial is already fully enrolled and will be used to provide safety data to file for approval. Also, the drug is in a phase 2 clinical trial to test its effectiveness on osteoarthritis patients.

"The bicifadine results are encouraging with results comparable to morphine in the worst patients, and other products in the pipeline that will scream acquisition as they begin to show promise," the buysider said. "Time will tell."

Amylin shares add 3%

Amylin Pharmaceuticals, Inc. survived the exit of Johnson & Johnson bailing out on its symlin program, and nicely with its later type 2 diabetes drug Byetta, the Boston buysider added. Amylin stock saw a nice bounce Friday after the company said it would be able to supply adequate quantities of Byetta by third quarter, but he sees further potential down the line.

Amylin shares (Nasdaq: AMLN) gained $1.19, or 2.61%, to end Friday at $46.85.

With Amylin, however, the buysider said one is considering a longer running story, or a more experienced biotech. It has gained approval for symlin and now Byetta is on the market with a new formula in the works to reduce dosage timing to once a week from the current twice-daily requirement.

Amylin's work on diabetes in earlier stages is even more exciting, he said.

"Methods of stimulating stem cells to induce insulin production was also an interesting topic at the ADA [American Diabetes Association meeting in Washington, D.C., last week]," he said. "As a scientist, I was very excited to hear so many possibilities for exendin-4 and its analogs. As an investor, I had difficulty containing myself as I heard one good thing after another regarding Amylin and its pipeline."

Endo, Penwest rise on news

To the upside, Endo Pharmaceuticals Holdings and development partner Penwest Pharmaceuticals saw a nice bounce, and robust volume, after the FDA approved the pain drug Opana.

"It was a great day for Endo," said a sellside trader.

As for Penwest, he said players are figuring it will participate with the Opana program in order to reap the benefits.

Early Friday, Endo said the FDA approved extended-release and immediate-release formulations of Opana, known generically as oxymorphone hydrochloride. The drug belongs to a group of opioid painkillers that includes oxycontin and morphine. Opana developer Penwest has the option, under a 1997 agreement, to share the launch costs in exchange for up to 60% of Opana profits.

Endo revised its revenue forecast upward on the news, but because of costs associated with the launch - excluding Penwest, which it said has not expressed a decision to opt into the Opana launch - it reduced its earnings projections.

Endo shares (Nasdaq: ENDO) gained $2.75, or 9.57%, to settle Friday at $31.50.

Penwest shares (Nasdaq: PPCO) shot up $5.92, or 36.79%, to $22.01.

Endo boosted its 2006 revenue guidance to $880 million to $910 million, with sales of Opana estimated to add $20 million to $30 million. The company said sales of long-acting, opioid pain relievers totaled $3.2 billion in 2005.

The company said that it plans to hire another 220 sales people to its existing force of 370 for the Opana launch and, thus, expects 2006 adjusted earnings to be reduced by about 20 cents a share, to a range of $1.55 to $1.60.

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