Tercica up 12%, Insmed rises 9%; Neurocrine closes weaker; Pharma Product up; New River deal emerges

By Ronda Fears

Memphis, July 18 - Earnings continued to steer trading patterns in biotechs Tuesday, but in general, traders said there could be cause for enthusiasm following a string of declines leading into the reporting season. Of particular note Tuesday were earnings of Neurocrine Biosciences, Inc. and Pharmaceutical Product Development, Inc.

"We should really see some ramping up in volume and price after the next few days, next week maybe," remarked a sellside trader. "The shorts, I think, just lost the war today and now it is just a matter of time before they are frantic."

The major biotech indexes were lower while the broader markets were slightly higher, but the trader said there were some technical signs that the biotech sector was poised to take a leap. Especially encouraging, he said, was a spike in summer trading flow with strong buy interest.

A buyside market source on the West Coast agreed: "The Mideast turmoil and sky high oil prices will probably continue to torpedo the market for a while, with periodic reversals, but it's starting to create some compelling stock values out there."

"Among the big questions now are how high do oil prices go (analysts see $100 a barrel possible), could the escalating Mideast events expand into Israeli military action against Syria and/or Iran (perhaps drawing in the U.S., and, is the combination of super high oil prices, sustained Fed tightening, a deflating real estate market, and reduced consumer spending setting us up for a possible recession?" the biotech fund manager said.

"If you figure to diversify across all market sectors, plus hold a good dose of cash, CDs and/or fixed income - for us aging geezers - something in the potential homerun area is biotech."

Another buysider said he was still sitting on the sidelines with cash-lined pockets, however.

"Nothing right now," the Boston-based biotech fund manager said when asked it he was shifting any positions during the earnings season. "I am just keeping our cash ready to deploy when the turmoil is over."

Also of note late Tuesday, New River Pharmaceuticals, Inc. launched a $125 million convertible bond deal with the seven-year notes talked to yield 3.25% to 3.75% with a 22.5% to 27.5% initial conversion premium.

New River shares (Nasdaq: NRPH) closed the session off by 25 cents, or 0.88%, at $28.05 but were seen in after-hours activity a little weaker on the news. The company said it would use proceeds to buy back up to about $50 million of stock, of which $40 million will be repurchased along with the closing of the sale of the notes. The notes are scheduled to price after Wednesday's close.

Novavax Inc. was another notable mover after reporting that it has received positive results from several preclinical studies relating to its pandemic and seasonal influenza vaccines, which are under development. Novavax shares (Nasdaq: NVAX) added 11 cents, or 2.89%, to $3.91.

Tercica, Insmed shifts seen

Rival biotechs Tercica, Inc. and Insmed, Inc. - two severely beaten down biotech stocks of late, having a patent battle under way over their competing hormone growth deficiency drugs - both saw a sharp spike without any news to spur action. A trader said it was a shifting in support between the rivals, as there was a lot of selling into Tercica's rally while buyers stepped in for Insmed.

"Tercica was up on small volume, then there was some selling, then it all happened again. There was some ditching into the spike," said a sellside trader. "Insmed sellers were finally drying up by the end of the day and now buyers are taking a more active role. Insmed definitely entered the buy zone."

Tercica shares (Nasdaq: TRCA) gained 49 cents on the day, or 11.64%, to $4.70.

Insmed shares (Nasdaq: INSM) were up 10 cents, or 9.43%, to $1.16.

Insmed has developed Iplex and Tercica has developed Increlex from an insulin-like growth factor-1, or IGF-1, process to treat children with growth hormone deficiency. They are in the middle of a patent dispute, which is slated to go to trial in November.

Neurocrine comes off highs

Neurocrine Biosciences Inc. traded as high as $9.75 before sinking back into negative territory Tuesday after reporting late the day before that its second-quarter net loss widened. A sellside trader said there was a sanguine attitude early in the day on the thinking that once earnings season was over, the prospects of a new marketing partner for its sleeping pill Indiplon might improve.

Pfizer, Inc. pulled out of a marketing deal for Indiplon after the Food and Drug Administration would only approve a smaller dosage of the sleeping pill. In afternoon trading, though, the trader said the thinking shifted to concern that if Neurocrine is keeping the boosted sales force it had ramped up for Indiplon, maybe it is not very optimistic about getting a new partner.

"They [Neurocrine] are looking for a new partner since Pfizer pulled out, and of course everyone hopes that they will eventually get the higher dosage [of Indiplon] approved," said a sellside trader. "Meanwhile, it's not a bad play. We saw buying this morning and that eased pretty sharp this afternoon."

Neurocrine shares (Nasdaq: NBIX) closed the day off by 27 cents, or 2.87%, at $9.15.

The company said it lost $27.4 million, or 73 cents a share, compared with a loss of $5.6 million, or 15 cents a share, a year before while second-quarter revenue dropped to $9.2 million from $33.2 million. Neurocrine revised its financial guidance for 2006, saying it anticipates a cash burn of $100 million with a year-end cash balance of $180 million. The company projects a 2006 net loss in excess of $130 million.

The company said it is continuing to review operating and financial resources to ensure that Indiplon and other high-priority development programs progress as quickly and efficiently as possible. With respect to the sales force developed to market Indiplon, Neurocrine said it is exploring opportunities to bring in another product or products that would provide a near-term revenue stream and allow it to keep those employees.

One buysider said he was remaining optimistic on Neurocrine.

"One can look at the cash burn, and the possible need for more trials, and what's going on with the sales force, and come away bearish, or one can focus on fact that it was disclosed there are 'multiple interested parties' negotiating with Neurocrine right now on partnering Indiplon, and that there is 'one particularly exciting opportunity' for marketing another drug with sales force that should cover the entire cost of sales force (or possibly be profitable if a second drug brought in, as was disclosed in the question and answer session of the conference call), and, hence, the sentiment would be bullish," the buysider said.

Neurocrine has six drug candidates in development, he noted. The company said it expects to report on several phase 2 and proof-of-concept clinical trials for its pipeline throughout 2006 and 2007.

DOV Pharmaceuticals, Inc., which would get royalties on Indiplon from Neurocrine, saw a dip on light volume after Neurocrine's earnings. Traders said there just was not a lot of interest in high-risk biotechs during the earnings season, but he sees potential in the trade.

"DOV didn't bounce off the buck ninety mark after the early day drop. I would've expected trading share sells to push it back up, even on a generally crummy day. If the trading action doesn't tighten here, I think this stock could be looking to descend into the buck fifty range, where I think the traders get back into trading the stock because there's so much to be made by playing the up and downdrafts."

DOV Pharma shares (Nasdaq: DOVP) closed off by 3 cents on the day, or 1.55%, at $1.90.

Pharma Product up more than 6.5%

The biotech lab and research services firm Pharmaceutical Product Development Inc. got lifted Tuesday on the heels of its second-quarter earnings report showing a 75% jump in profits amid strong growth in demand for its services.

But the day's gains were a disappointment to one holder.

"Huh, 30% growth [new business] and that's all we see, not even 10%? That was a miserable little pop in price today after excellent earnings announcement - at least in view of the generally flat price performance between quarterly reports," the buysider said. "The Street is crazy. I'm staying long. This company is a top investment."

Pharmaceutical Product shares (Nasdaq: PPDI) added $2.36 on the day, or 6.56%, to $38.32.

The company reported second-quarter earnings of $36.4 million, or 31 cents a share, up from $20.8 million, or 18 cents a share, the year before with revenue gaining 26% to $308.9 million from $245.1 million. The company said it grew its book of net new business by 34.5% in the quarter, resulting in a net book-to-bill ratio of 1.44 and backlog of more than $2 billion.

"Who knows what the stock will end up doing but it sure doesn't look like the business is slowing down much. One might think investors would gravitate toward companies like PPD in the coming year due to fears of a slowing economy and the prospects that go with it concerning industrial/economically sensitive issues," the buysider said.

"That's why I am hanging on."

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