Vasogen plunges 74%; Anadys falls 45%; Nastech, Amylin gain on pact; Neurocrine finds buyers

By Ronda Fears

Memphis, June 26 - A high profile acquisition - Johnson & Johnson's purchase of Pfizer, Inc.'s consumer health care division for $16.6 billion in cash - and a jumbo investment that is expected to impact the sector - Warren Buffett, the Oracle of Omaha, pledging in the neighborhood of $37 billion in Berkshire Hathaway, Inc. stock to the Bill and Melinda Gates Foundation - did little to nothing Monday in the way of bolstering biotech buying, traders said.

Rather, disappointing trial news from Vasogen, Inc. and Anadys Pharmaceuticals, Inc. sent those shares crashing into near oblivion. In the face of several recent trial and regulatory disappointments, traders said biotech players remain nervous. The Nasdaq Biotechnology Index spent most of the session in the red but managed to settle slightly higher, and there were several nice gains in the sector despite the overshadowing declines.

"Cash is king this summer," said a biotech stock trader at one of the bulge bracket firms. He said biotech players for the most part were hanging out on the sidelines, still too jittery because of recent blow-ups to be buyers.

A buyside source in Boston said he is not sitting idle but has been a seller in some positions and redeployed funds with a focus on cash - at the company level.

"Indeed," said the fund manager, at the concept of cash being king right now. "That's why we like the companies with nice cash balances - Avigen, Inc., Inhibitex, Inc., etc."

Buyers were not totally off the game, Monday, however. Neurocrine Biosciences, Inc. - one of the bombshells of late - saw some heavy buying on the recent plunge that stock took. On Monday, Neurocrine shares (Nasdaq: NBIX) climbed 91 cents, or 9.24%, to end the day at $10.76 with some 8.2 million shares traded versus the norm of 2.9 million shares.

J&J drops, Pfizer rises

While Pfizer, Inc. said it will channel most of the cash from the Johnson & Johnson deal into stock buybacks, biotech players said the news initially sparked renewed hope of a deeper investment from the Big Pharmas into biotechs. At the end of the day, however, traders said the event failed to move any biotechs.

"I think the sale to J&J looks to unlock some value [at Pfizer], perhaps for focusing on pipeline," said a sellside biotech stock trader. "Pfizer has expressed interest along those lines, like all the Big Pharmas, for a while. I think they could reasonably pick up some interesting biotechs while they do the stock buybacks, too. But we have heard that for a while, right, and not much has come of it."

Pfizer shares (NYSE: PFE) gained on the news, settling higher by 37 cents, or 1.61%, at $23.01.

Johnson & Johnson shares (NYSE:JNJ), however, ended the day lower by $1.11, or 1.81%, at $60.21.

"The company [J&J] gives up virtually all the cash that is also needed for accounts payable," the trader said. "In a way I am sympathetic because the company needed more consumer brands to add to its inventory, but at four times sales? That's ridiculous."

Vasogen off on trial failure

Moreover, the trader said the extreme uncertainty that has prevailed recently with regard to trials and regulatory flops may have turned Big Pharma off to picking up early stage biotechs. The latest disaster to strike was Canada's cardiovascular and neurological biotech Vasogen Inc.

Vasogen was "obliterated," as the trader put it, after reporting disappointing initial results from a 2,414-patient phase 3 trial of its Celacade technology in advanced chronic heart failure. There were a few holders holding steady in the face of the drop and picking up additional shares, though.

"This is a panic sell-off. This company will make it," said a buyside source at a fund based in Dallas. "Biotech is not for wimps or wussies. And we knew it could drop like this. If we were scared, we would have bailed last week. Remember the climb is not always vertical."

Vasogen shares (Nasdaq: VSGN) ended the day with a $1.37 drop, or a whopping 73.95%, to 48 cents. The stock traded in a band of 48 cents to 74 cents with eye-popping volume of 42.9 million shares, compared with the norm of 584,455 shares.

Mississauga, Ont.-based Vasogen said the study did not reach the primary endpoint of significantly reducing the risk of death and cardiovascular hospitalization in the total population but did reach the endpoint for a subgroup of 692 patients with New York Heart Association Class 2 chronic heart failure, which Vasogen called "a very encouraging result."

The company said it is continuing to analyze the data and would report complete results at a Barcelona, Spain, cardiology conference slated Sept. 2-6.

Anadys suspends trial activity

In another surprising disappointment, Anadys Pharmaceuticals announced Monday that it has suspended dosing hepatitis C patients in its ongoing phase 1b clinical study of ANA975 pending additional analysis of recently obtained information from preclinical 13-week toxicology studies in animals.

Anadys shares (Nasdaq: ANDS) fell by $3, or 44.84%, to $3.69 - a new 52-week low, eclipsing the $6.46 hit last week. In March, the stock had a string of new 52-week highs - $16.60, which was hit March 30.

"We exited around $15 a share a while back," said a Boston-based fund manager. "The stock was fairly valued at that time, so we're not fans of the stock now unless it's under $3."

JMP Securities analyst Adam Cutler also said that if the stock drops to a certain cash level, which is close to Monday's close, then it might be worth considering. He cut the stock from strong buy to market perform, noting that ANA975 was the biggest value driver for Anadys and the trial news leaves its future uncertain.

Anadys' pipeline still includes ANA380 for hepatitis B, which is expected to enter phase 3 this year, ANA773 for cancer, which is expected to enter phase 1 in the second half of this year, and preclinical programs for hepatitis C and HIV.

"While these programs have value and should drive appreciation over time, the setback in ANA975 and lack of near-term catalysts are causing us to move to the sidelines for now," Cutler said in his report. "We note that at the end of first quarter 2006, Anadys had $3.51 per share in cash and we believe that the stock could be bought if the share price approaches the cash value."

Nastech up 6% on Amylin deal

On the upside, and there were several, Nastech Pharmaceutical Co., Inc. on Monday reached an agreement worth up to $89 million to partner with Amylin Pharmaceuticals, Inc. on the development of a nasal spray formulation of the type 2 diabetes drug exenatide.

"It is Amylin's approved compound with a shortened pathway, thus milestones will come and single-digit royalties could be substantial each year," said a Nastech player on the buyside.

"The entire value of this partnership could arguably exceed Nastech's current market cap. Also, I think this deal exemplifies Nastech management's deal-making proficiencies. Nastech's science and deal-making overcame some very thorny politics. A lot of risk has been removed from our investment and a lot of potential reward added. So, regardless of the stock price in the near term, we sit far more comfortably than for two years now."

Nastech shares (Nasdaq: NSTK) gained 87 cents on the day, or 6%, to $15.38.

Amylin shares (Nasdaq: AMLN) also ended higher, adding 55 cents, or 1.17%, to $47.40.

The deal calls for Nastech to receive milestone payments and royalties on product sales, together up to $89 million. Further financial terms were not disclosed. Nastech is providing its proprietary nasal delivery technology to the partnership, and Amylin has overall responsibility for the development program.

In addition, Nastech also said Monday that data from an early stage trial showed its nasal spray version of parathyroid hormone was tolerated at dosage levels similar to Eli Lilly Co.'s injectable version of the drug, Forteo, which is approved to treat postmenopausal osteoporosis.

Pozen up 7% on pain data

Another gainer in the session was Pozen, Inc. on new data showing that its migraine drug trexima demonstrates effective treatment of migraine-associated neck and sinus pain. But the rise sparked some players to take profits.

Pozen and development partner GlaxoSmithKline plc presented the new data at the American Headache Society meeting in Los Angeles. In addition, the data showed trexima was statistically superior in producing pain-free rates as early as 30 minutes. Furthermore, significantly more patients reached pain-free status at two hours and this was sustained for 24 hours without the use of additional medicine. Trexima is under review with the Food and Drug Administration.

Pozen shares (Nasdaq: POZN) gained 45 cents on the day, or 6.69%, to $3.69.

"I'm taking profits here. I think a fading and down trend will continue," said the Anadys buyer. "I think that's obvious. I'll take every penny I can now and buy it back when today's euphoria wears off. I'll take profits today buy back tomorrow below $7 then hold for $20."

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