Alexion hits new high; Vertex up on data, earnings; Genitope lifted after deal; Oscient up on new pact

By Ronda Fears

Memphis, Feb. 7 - Biotechs on whole followed the broader market lower Tuesday but traders were talking about several names that bucked the southerly pull to head north on hefty buying in some cases.

"We saw quite a few biotech names with some nice gains on a really overall negative session," said a sellside biotech stock trader.

Alexion Pharmaceuticals, Inc. was at the top of his list as the stock hit a new 52-week high, surpassing the previous high of $30.97. Alexion shares (Nasdaq: ALXN) gained $1.20 on the day, or 3.99%, to settle the day at $31.30.

"If it helps comfort you, Morgan Stanley raised Alexion's price target last week from $30 to $38. Bear Stearns also raised their target to $37 from $29," said the trader, who is based in Los Angeles. "Every analyst report I read also says that they may be understating the overall potential in PNH [Paroxysmal Nocturnal Hemoglobinuria] due to the market pricing and size of market potential. Even Bank of America, who is the most cautious on the stock, makes these comments."

There was no news on the wires about Alexion on Tuesday, though, he remarked. Cheshire, Conn.-based Alexion has Eculizumab in phase 3 clinical development for treatment of Paroxysmal Nocturnal Hemoglobinuria, a chronic hematologic disease, and Pexelizumab in clinical development with Proctor & Gamble for the reduction of complications associated with coronary artery bypass graft surgery.

Vertex gains 5%, up after close

Vertex Pharmaceuticals, Inc. also flirted with a new 52-week high after reporting eagerly anticipated data for its hepatitis C drug candidate VX-950, and extended the day's gains in after-hours activity on news of a narrower fourth-quarter net loss.

After the closing bell, Cambridge, Mass.-based Vertex reported a fourth-quarter net loss on a GAAP basis of $38.1 million, or 38 cents a share, compared with a net loss on a GAAP basis of $42.8 million, or 54 cents a share, a year before, with revenues gaining to $63.75 million from $39.84 million.

Vertex shares (Nasdaq: VRTX) gained in the regular session Tuesday by $1.81, or 5.28%, to $36.11. The stock traded as high as $37.85 - passing the 52-week high of $36.63 hit last week - in early trade Tuesday after the company released preliminary data on its hepatitis C drug, VX-950.

Initially, the earnings news sent the stock lower in post-close trading as the loss for the year expanded but updates from the company on drugs in development helped lift it, traders said.

For 2005, the net loss on a GAAP basis was $203.4 million, or $2.28 per share, compared with a net loss on a GAAP basis of $166.2 million, or $2.12 per share, in 2004, while total revenues increased to $160.9 million from $102.7 million for 2004.

After-hours activity went north shortly after the company conference call started and the stock was seen at 5:21 p.m. ET up by another 34 cents, or 0.94%, to $36.45.

"There is more to Vertex than VX-950," said a buyside market source in London at around midday in the United States. "They have other drugs in the pipeline that look interesting too."

Vertex outlines 2006 outlook

"In particular, we increased our financial strength as we advanced potentially transformational compounds targeting hepatitis C virus, rheumatoid arthritis and cystic fibrosis," said Vertex chief executive Joshua Boger in a statement. "Our performance last year has positioned us to build momentum in 2006."

At Dec. 31, Vertex had some $407.5 million in cash and equivalents, $42.1 million of convertible debt due September 2007 and $118 million of convertible debt due February 2011.

For 2006, Vertex anticipates a net loss on a GAAP basis in the range of $205 to $225 million. The company expects 2006 revenues in the range of $210 to $235 million.

"2006 can be a further transformational year for Vertex. As we look toward the end of 2006, we expect that VX-950 will be on track for a 2008 New Drug Application submission, that our pipeline will continue to advance and that our business model will enable us to capture the full value of all of our assets," Boger said.

"Specifically, we expect to have generated data with VX-950 that supports the start of phase 3 development in 2007. Also in 2006, we expect to obtain clinical results from a major study of VX- 702 in rheumatoid arthritis and begin clinical studies of a small molecule drug for cystic fibrosis. We also expect to report progress on our drugs in development with collaborators, including our HIV protease inhibitor brecanavir, our Aurora kinase inhibitor VX-680 targeting cancer, and VX-409, our novel, subtype selective sodium channel modulator for the treatment of pain. All of these clinical advances have the potential to drive significant value for shareholders."

Vertex trial data encouraging

A buyside market source summarized Vertex's outlook by saying, "They are telling us to be patient." That, he said, is easier with some positive trial data simultaneously coming from the company.

Vertex announced earlier Tuesday that preliminary phase 2 clinical data indicated VX-950 was extremely effective in preventing replication of the hepatitis C virus in the body. VX-950 was tested in combination with two other standard hepatitis C drug therapies, pegylated interferon and ribavirin.

The update on VX-950 and other drugs in development at Vertex was very early - as it involved patients only over a 28-day period - but it was something the market was especially looking for, and most were excited about the news.

"VX-950 is one of the many next generation protease inhibitor drugs going through clinical trials for hepatitis C treatment," said the buyside biotech analyst, who is based in Seattle. "Hep C is a nasty virus. It has been especially hard to treat. The current gold standard treatment is a Pegylated Interferon and Ribavirin combination therapy. It is only partially effective and has difficult side effects. The current market is about $1.5 billion, and is split roughly 50/50 between Schering-Plough and Roche, but the expected market could top $4 to $6 billion per year if a better treatment were available."

"The protease inhibitor technology has been effective to some extent in HIV treatment, and shows promise in Hep C treatment. Early trials show both greater efficacy and positive effects in a larger group of people. Looks promising, but earlier attempts by other companies have failed due to toxicity that shows up in trials.

"So we have a classic showdown between existing technologies and new technologies, with some Big Pharma players involved and some smaller biotechs. It's very speculative. The result is the stock rallies on good news, pulls back in the absence of news - both due to profit taking and to people covering their exposure."

Genitope jumps 2% after deal

Genitope Corp. shares initially slumped but ended the day higher after the company sold an upsized follow-on offering of 6.4 million shares, boosted from 4.5 million shares, at $8.50 - discounted from Monday's close of $8.93.

"The price looks OK and the stock has a lot of room to move up without hitting resistance," said a sellside trader. "On the other hand, I do see the $8.50 price and the raising of $50 million versus the pre-announced $35 million as a negative. Surely the $35 million would have been enough to tide through July."

He said market scuttlebutt that the company trimmed the price on the stock offering and upped the number of shares in order to raise more money was scoffed at by holders who did not participate in the deal.

"Well no matter what anybody says the volume means there were a lot of buyers in this range and it also means a lot of sellers," the trader said. "But the buyers mean new money and potentially that we have established a bottom price until news comes in July."

Redwood City, Calif.-based Genitope is focused on cancer treatments. Its lead product candidate, MyVax Personalized Immunotherapy, is a patient-specific active immunotherapy based on the unique genetic makeup of a patient's tumor and is designed to activate the patient's immune system to identify and attack cancer cells.

A buysider who participated in the deal said he will likely cash out of the story soon.

"Originally, I thought the stock had a decent price and decent chart. The increased number of shares leads to heavier dilution but the stock price seems stable, waiting for potential breakout news or failure of a clinical trial endpoint," he said. "The negative is the company has a single product in a risky environment, the company doesn't have a lot to fall back on."

Trial results are expected from Genitope this summer, he said.

Oscient gains 4% on Pfizer pact

Oscient Pharmaceuticals Corp. took off Tuesday on an expanded marketing agreement with Pfizer, Inc. for the antibiotic Factive to include Mexico. A sellside trader said most of the move was buying by first-timers or holders adding to their positions, rather than short covering.

"There wasn't enough volume to attribute this to short covering," the trader said around noontime. He added, early in the afternoon, "Looks like buying has dried up for today."

Oscient shares (Nasdaq: OSCI) added 9 cents on the day, or 4.17%, to close at $2.25. Some 887,365 shares traded, versus the three-month running average of 552,300.

Waltham, Mass.-based Oscient announced that it has sublicensed the commercialization rights to Factive tablets in Mexico to Pfizer's unit in Mexico and will receive an up-front payment, milestones for attaining certain regulatory and sales goals as well as royalties on future sales. But specific financial terms were not disclosed.

Factive is currently approved in the United States for the treatment of community-acquired pneumonia of mild to moderate severity and acute bacterial exacerbations of chronic bronchitis.

"The fact that Oscient is entering the Mexican market is not very important, but the most important thing in the news of today is, in my opinion, the relationship with Pfizer," said the sellsider. "Pfizer is one of the largest pharmas in the world, they are selling their products worldwide. Mexico is only a test field. Canada, Europe and the whole Asian market will follow. That's important."

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