Genentech falls on Avastin delay; Vertex pitches $300 million deal; OSI off 2%; Genitope loses 5%

By Ronda Fears

Memphis, Sept. 11 - Big biotech Genentech, Inc. took a big hit Monday on news of a delay in approval for its cancer drug Avastin in breast cancer because of a request from the Food and Drug Administration for more data, but late in the day buying kicked in on the downdraft to prop up the stock.

Genentech shares (NYSE: NDA) fell $3.74, or 4.56%, to $78.33 but buying brought it off the day's low of $76.80, which traders said was "dangerously" flirting with the 52-week low on the stock of $75.58.

"The stock has seen its glory days," said one buysider who was selling early in the session. "There is a lot of capital tied up in a company that continually trips over its own feet. Couple that with the continual FDA problems and you have a disaster. The buzzards are hovering waiting to pick the carcass clean."

A sellside market source, however, said whether you considered it bargain-hunting or not, there was heavy buying in Genentech shares late in the day.

"The stock is underperforming and depending on where you bought in maybe selling today was a good idea," the sellsider said. "Rightly so, there was some selling going on. But I don't think it was an all-out dump. There was a load of buying late in the day."

The FDA has requested additional safety and efficacy data for Avastin, which analysts estimate will mean a delay in the full approval for Avastin of six months to a year. But most sellside analysts agreed that Genentech shares are still a buy and recommended purchasing on any pullback.

In particular, the FDA has requested an independent review of Genentech's E2100 study for progression-free survival rates in the patients. Because of the delay, Genentech now expects to resubmit its application, which was originally filed in May, by mid-2007. The FDA will then have about six months to make a decision.

Avastin is already approved to treat colorectal cancer. San Francisco-based Genentech is also seeking to have it approved for lung cancer.

Discovery Labs buying surges

Genentech's news was a downer for most of the biotech sector, but on the upside, Discovery Laboratories, Inc. extended gains from last week even though there was no merger news Monday. Even without any news, a sellside trader said the stock saw a surge in buying.

"Nothing panned out, yet, on the buyout noise, but there was a lot of buying today," the trader said, noting volume picked up from Friday.

Discovery Labs shares (Nasdaq: DSCO) added 12 cents, or 7.41%, to settle the day at $1.74, following an 8% gain on Friday amid chatter that buyout news was imminent.

Nearly three months ago, Discovery Labs hired Jefferies & Co. to explore strategic alternatives after the Warrington, Pa., biotech lost in the neighborhood of 80% of its value following the failure in April to get FDA approval for its respiratory antibiotic Surfaxin in premature infants because of manufacturing issues. Meanwhile, the company is slated to meet with the FDA about Surfaxin before year-end.

OSI details partnership plans

As mentioned before, the biotech sector was pretty much in the red Monday although the broader index was rather unchanged. Sparse news on the tape also made for light trading, traders said, along with many players - investor types - away at conferences listening to biotech presenters.

One example of the later was OSI Pharmaceuticals, Inc., which was lower even after saying at the Bear Stearns health care conference Monday that it expects to have a substantial partnership in place by the end of the year for its diabetes and obesity program.

OSI shares (Nasdaq: OSIP) lost 82 cents on the day, or 2.23%, to end at $36.

"It is not that people didn't hear them," said one sellside trader. "It's that there is a lack of faith that they will be able to attract someone willing to foot the bill."

Michael Atieh, chief financial officer of OSI, said the company is actively looking for an arrangement with a partner that is willing to take on the majority of the development costs of the program.

"It is absolutely our intent to partner this portfolio. This is a primary care portfolio and we are not a primary care company," Atieh said.

Melville, N.Y.-based OSI has three products for treatment of diabetes or obesity in various stages of clinical development.

Vertex off 2% after the close

A down market did not deter Vertex Pharmaceuticals, Inc. from launching after the close a follow-on offering of 8 million shares, worth roughly $300 million, but it did perplex onlookers.

"I mean they got a lot of cash from the J&J deal, plus the current cash on-hand totals around $350 million. There's no need to sell another 8 million shares right now," a buyside market source from Boston said.

In late June, Vertex inked a collaboration with Johnson & Johnson companies Janssen Pharmeceutica, NV and Tibotec Pharmaceuticals Ltd. to commercialize its hepatitis C virus protease inhibitor VX-950, for which it pocketed an upfront payment of $165 million and could get up to $380 million in milestone and royalty payments.

Some additional information about current plans might be gleaned from Vertex's presentation at the Bear Stearns health care conference, where Vertex is scheduled to present on Tuesday.

Cambridge, Mass.-based Vertex is principally focused on viral diseases, inflammation, autoimmune diseases, cancer, pain and bacterial infection. Vertex co-discovered the HIV protease inhibitor Lexiva with GlaxoSmithKline plc.

Generically, Vertex said proceeds are slated for development, manufacturing, acquisitions and general corporate purposes, but otherwise any specific spending plans were undefined.

The stock (Nasdaq: VRTX) closed Monday off by 52 cents, or 1.47%, at $34.82 and in after-hours activity, on word of the deal, dropped another 71 cents, or 2.04%, to $34.11.

Genitope looks cheap on drop

Another presenter at the Bear Stearns conference was Genitope Corp., which also moved southerly, but one buyside market source said eventually the news of the day on Genentech should bode well for Genitope and that makes the stock look cheap.

Genitope shares (Nasdaq: GTOP) lost 15 cents on the day, or 5.17%, to close at $2.75.

"The news on Avastin today should be considered as positive for Genitope," said the Boston-based buysider.

"Why? Because if a truly wonder drug like Avastin is being delayed by the FDA for a new treatment, then the delay on MyVax needs to be put in the proper perspective, and investors should realize the delay doesn't in any way diminish the likelihood of ultimate approval. Additionally, the company has the cash to carry them to completion."

Since July, Redwood City, Calif.-based Genitope has been battered by setbacks related to trial results for a phase 3 clinical trial of its cancer treatment MyVax - a personalized, patient-specific immunotherapy that is based on the genetic makeup of a patient's tumor designed to activate a patient's immune system to identify and attack cancer cells.

Iomai gets flu patch clearance

Iomai Corp., which was the subject of heavy buying six weeks ago on weak performance since going public earlier this year, became the source of profit taking Monday after receiving FDA clearance for a study comparing the novel flu vaccine patch to traditional injectable vaccine.

"I never would have thought we would trade down based on the news," said a buyside market source. "I guess we are not (yet) on many people's radar screens."

Iomai shares (Nasdaq: IOMI) ended the session off by a penny, or 0.25%, at $3.99.

A sellside trader, though, described the dip in Iomai as the result of some profit taking by late entrants in the stock, or those buying in early August.

Iomai zoomed last month by nearly 28% - recouping more than half of its losses since debuting in February. The stock's poor performance made it one of the worst-performing initial public offerings of 2006 with a 53% decline as of July 31 from where it debuted. The stock priced at $7.

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