Amgen leads sector lower; Dyax gains on Kos' loss; Oscient rises; Gene Logic up; Discovery Labs off

By Ronda Fears

Memphis, Sept. 22 - Big biotech Amgen, Inc. led the sector lower Friday, taking a delayed hit from comments earlier in the week from the new chief executive of Pfizer, Inc. that the Big Pharma was aiming for the top spot in the biotech sector.

While Pfizer's move might be a great argument for takeovers of smaller biotechs, one sellside market source said it would be extreme pressure on the likes of Thousand Oaks, Calif.-based Amgen and San Francisco-based Genentech, Inc. - rivals for the top spot in the biotech group.

Amgen shares (Nasdaq: AMGN) fell $1.12, or 1.56%, to $70.89 on Friday with volume of 8.85 million shares versus the norm of 7.5 million shares. Genentech shares (NYSE: DNA) were only slightly lower with a 7 cent loss to $78.47 with light volume of 1.6 million shares versus a norm of 3 million shares.

"Amgen is more vulnerable because Genentech has ties to Roche [Swiss-based Roche Holdings AG is a majority owner of Genentech]," the sellsider said.

"Pfizer has deep pockets, so it could make a serious run for the top spot in biotech and get there. It is disconcerting. But, the interesting thing today was that Pfizer was weaker, too. The comments were made mid-week, so I don't think the market has a grasp on it yet."

In a presentation at the annual Bank of America investment conference in San Francisco on Wednesday, Jeffrey Kindler, the new CEO of New York-based Pfizer, remarked that Pfizer is the No. 8 biotech in the world and he wants the company to become No. 1 in the not too distant future.

"The major pharmas are all looking for new drugs in their pipeline," the sellside source said. "This could justify some of the chatter we hear about takeovers of the smaller biotechs. I don't think there is any news coming anytime soon, though."

Oscient better on Factive news

Much as expected, Oscient Pharmaceuticals Corp. announced Friday that it has an approvable letter from the Food and Drug Administration for a five-day treatment of community-acquired pneumonia for its antibiotic Factive.

Oscient shares (Nasdaq: OSCI) gained 13 cents, or 13.13%, to $1.12 on the event.

"There was a nice run this morning, but it slowed down a lot after lunch," a sellside trader said. "Market reaction shows that maybe the reaction is even a little bit over-optimistic. People estimate that the approval is secure."

The Waltham, Mass., biotech said it will be required to provide clarification and additional interpretation regarding certain data included in its application for a label expansion of Factive to assist the FDA but it believes no additional clinical trials will be required.

Factive is approved for a seven-day course of treatment for community-acquired pneumonia and as a five-day course of treatment for bacterial chronic bronchitis.

Gene Logic gains 4%

In another bounce amid the mostly negative day for biotechs, Gene Logic, Inc. was higher after announcing its business review confirms there is potential for its drug repositioning business to "significantly enhance long-term shareholder value" through deals with big pharmaceutical concerns.

Gene Logic shares (Nasdaq: GLGC) gained 6 cents, or 3.92%, to $1.59.

"There was a good review from a private firm. Though a lot of the information is vague, it leads me to believe Gene Logic is very close to putting one of their drug repositioning candidates back into phase 2 trials, my guess is with Organon [a unit of Netherlands-based Akzo Nobel]. If this proves to be true this company will fly.

"Cutting costs in the genomics division will let Gene Logic stay afloat while they start introducing restructured drugs back to market. As for the preclinical business, I think it will move into profitability very shortly but I don't see it so important to its overall success."

Gene Logic slashed its genomics division earlier this year on declining revenues from that unit. On Friday, the company said findings of a business review conducted over the last 90 days by a leading strategy consulting firm has validated large pharmaceutical companies' interest in the emerging field of drug repositioning as an important option for obtaining new, late-stage pipeline drug candidates.

The company said it believes its approach to repositioning high-quality drug candidates that stalled in clinical development for reasons other than toxicity could, in many cases, enable these candidates to return directly into phase 2 clinical development.

"Drug repositioning agreements reached with Pfizer, Organon and Roche as well as a number of active discussions underway with other pharmaceutical companies, are evidence of the value the industry places on its drug repositioning capability," Gene Logic said in a prepared statement.

"Generally, these agreements provide for significant milestone and royalty payments, and several contain the option for Gene Logic to develop or co-develop successfully repositioned drug candidates under certain conditions. The company believes it has made significant progress to date on a number of candidates in the program. It is currently in discussion with partners about which of these drug candidates may be appropriate for further advancement."

Dyax up on KOS plunge

Dyax Corp. rocketed Friday on news that a late-stage clinical trial for Kos Pharmaceuticals, Inc.'s Icatibant showed mixed results as a treatment for hereditary angioedema, as it was seen as good news for Dyax's competitor drug DX-88.

Dyax shares (Nasdaq: DYAX) gained 53 cents, or 18.47%, to $3.40.

Kos shares (Nasdaq KOSP) lost $1.79, or 3.65%, to $47.28.

"Dyax is a growing company. It's a good time to get in," said a sellside trader.

Kos said that while one phase 3 clinical trial for Icatibant was successful, another phase 3 trial was inconclusive. Still, the Cranberry, N.J.-based biotech said it and European partner Jerini AG plan to submit a New Drug Application for approval to the FDA by the end of the year. Berlin-based Jerini also plans to ask the FDA for an expedited review, meaning the drug could be launched in 2007.

Jerini shares (Xetra: JI4) also fell, losing €1.04, or 22.13%, to €3.66.

Dyax's DX-88, also for the treatment of hereditary angioedema, is in phase 3 clinical trials. In August, the FDA requested an additional clinical trial but Dyax and partner Genzyme Corp. said they expect DX-88 to get FDA approval during the second half of 2008.

Discovery Labs hope fading

More on takeover chatter: While hopes for a deal for Discovery Laboratories, Inc. have not entirely been erased, they are fading. Yet, a sellside trader said there could still be room to buy and cause for optimism if the company could come up with some interim funding.

"With luck, Tuesday will bring a CEFF [committed equity financing facility] announcement," the trader said. "Another $10 million into the coffers will fund another quarter and moves the drop-dead date from early January to early April."

Still, there were buysiders exiting the story on Friday, although the trader noted volume was light in the stock.

Discovery Labs share (Nasdaq: DSCO) dropped 5 cents on the day, or 2.23%, to close Friday at $2.19.

Having hired Jefferies & Co. to explore strategic alternatives more than three months ago, many holders are getting weary with the lack of any developments along this front. Meanwhile, the company still toils away at getting its antibiotic Surfaxin approved for respiratory distress syndrome in premature infants, after repeated obstacles at the FDA over manufacturing issues.

"Enough speculation, wishful thinking and whatever," said a buyside source in Atlanta.

"I had very high expectations for this company early on, but this company is going nowhere. If some Big Pharma was interested in this company, Jefferies would have put it together by now. If the outlook was very rosy here and the management team was viewed as competent, at this price, you might have even had some private money come in and take it private. There has been no expression of interest here that has been made public.

"The silence here is deafening. My guess is that Big Pharma will wait until there is more concrete chances of [Surfaxin] approval before making a move on Discovery Labs, because of the current price point."

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