Oscient may bounce on expected FDA rejection; New River rises 6%; Adolor flat, Progenics lower

By Ronda Fears

Memphis, Sept. 12 - Traders said there could be a bounce Wednesday in Oscient Pharmaceuticals Corp. stock, which was halted Tuesday while a Food and Drug Administration panel met to vote on its application to expand the label for the antibiotic Factive to include sinusitis along with pneumonia and bronchitis.

After the close, news on the tape confirmed that, as had been indicated in preliminary documents from the panel, the vote was to not approve Oscient's application. Because the outcome was widely anticipated, and contributed to a drop in the stock last week, traders now expect to see some buying in the name, or at the very least short covering.

"Some shorts just don't pay attention and thus some shorts get burned. Oscient may drop initially but with [a] 94 million share float, most are long time investors that will not panic on so-called news we already expected," said a biotech equity trader.

"The people that wanted out, got out, and this won't faze the long-term investors of Oscient. As a matter of fact, those will be looking to pick up more on the cheap. I look for buying on anything under $1.36 after the open."

Oscient shares (Nasdaq: OSCI) were halted all of Tuesday where the stock closed Monday, at $1.14.

Nonetheless, a decline in the Waltham, Mass.-based biotech's stock, at least initially Wednesday, is expected because of the lost revenues from expanding the Factive label.

"OSCI is at least making the right steps, but it [is] now all about execution," said a buyside market source. "Given the past, I am cautious. Time will tell if they continue to exist or not."

Otherwise, there was a big lift to the biotech sector, which one sellside trader attributed to the upcoming option expiry on Friday and a sprinkling of bargain-hunting.

Vertex set to price Thursday

Pricing on Vertex Pharmaceuticals, Inc.'s roughly $300 million follow-on offering of 8 million shares is slated to price Thursday, according to syndicate officials, and the stock saw a wide swing amid heavy action Tuesday.

Vertex shares (Nasdaq: VRTX) ended off by 23 cents, or 0.66%, at $34.59 - near the session high of $34.62. The stock had traded as low as $32.77 intraday. Then, in after-hours activity, the stock moved on up by 52 cents, or 1.5%, to $35.11.

"It's only 7% dilution. Good timing, I say. Looks to me like Vertex is healthy enough to withstand 7% dilution. After hours trading shoved it up to a 52-cent gain today. All signs point to a healthy 'Go!' for 2007. I really expected a $2.50 hit today. I think we have a winner here," said a biotech fund manager in Boston.

"The Golden Rule of running a biotech still is 'take the money when you can, not when you need it.' That applies to all biotechs. Money is provided by funds, not by retail investors; funds know how to play the game and prefer to invest before the good news not after. Hence the timing, I guess."

As for speculation about what specifically the company will be deploying the new funds for, that remains purely speculation as the company cancelled its scheduled presentation at the Bear Stearns health care conference because of the deal.

In June Vertex inked a collaboration with Johnson & Johnson for which Cambridge, Mass.-based Vertex received an upfront payment of $165 million, plus up to $380 million in milestone and royalty payments. The company is focused on viral diseases, inflammation, autoimmune diseases, cancer, pain and bacterial infection, and also is partners with GlaxoSmithKline plc on the HIV protease inhibitor Lexiva.

Vertex said proceeds are slated for development activities, manufacturing, acquisitions and general corporate purposes, but otherwise any specific spending plans were undefined. But the buysider noted that in the company's latest quarterly report it said it planned to start a phase 2a clinical trial for VX702 in patients with rheumatoid arthritis in fourth quarter of 2006.

"If you recall, Vertex had announced that it was delaying the above [VX702 trial] until first quarter of 07. Then apparently they quietly moved it back to the initial fourth quarter of 2006," the buysider said.

New River filing in late 2007

Calming concerns over insider sales of New River Pharmaceuticals, Inc. shares last week, which pressured it sharply lower, the stock regained much of that ground Tuesday on news it plans to file for FDA approval of its NRP104 for adult attention deficit hyperactivity disorder around mid-2007.

"Normally, I would be a bull on this stock, but the recent price action indicates to me that product launch might be delayed," said a buyside market source.

"The move from $32 to $25 [in May when NRP104 trial data was disappointing] can be attributed to the probability of schedule II classification [a more stringently regulated drug category], but at $23 you have to ask is there more we don't know about.

New River shares (Nasdaq: NRPH) shot up $1.40 on Tuesday, or 6.33%, to close at $23.53.

Radford, Va.-based New River said it expects to complete a study in fourth quarter, announce top-line data in first quarter 2007 and to file a supplemental New Drug Application for the adult indication in second-quarter 2007. The company also hopes to market the drug for ADHD in children aged 6 to 12, and the FDA is slated to respond to that application by Oct. 6.

The company is developing NRP104 in collaboration with Shire plc, the British maker of the ADHD drug Adderall XR.

Adolor flat, Progenics adds 4%

Extending a theme from last week on clinical trial news, Progenics Pharmaceuticals, Inc. gained at the expense of Adolor Corp., but onlookers expect the gap to close soon so there was some buying in the latter that provided for a flat close.

Progenics shares (Nasdaq: PGNX) gained 93 cents on the day, or 3.91%, to settle at $24.72.

Adolor shares (Nasdaq: ADLR) traded in a band of $13.25 to $13.50 before ending the day unchanged at $13.40.

"Last week Adolor lost about $500 million in market cap. Progenics gained about $60 million. While the market value for these types of drugs isn't a completely closed loop it seems this disparity is just too large," said a buyside market source.

"I suspect Progenics will continue to rise, but that Adolor, barring other news such as their partner backing out, will rebound too. The relative market caps were always way out of whack as Adolor, with basically one drug, should never have had two times the market cap of Progenics with its much more robust pipeline."

A week ago, Progenics gained more than 10% on news from Adolor and partner GlaxoSmithKline plc that their alvimopan opiate-induced bowel dysfunction drug, which is competition for Progenics' methylnaltrexone, only met its endpoint in one phase 3 trial but not in the other. Adolor shares lost more than 45% on that news.

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