OSI Pharma, Eyetech lower; Coley steady after big net loss; King Pharma, Pain extend moves

By Ronda Fears

Nashville, Nov. 11 - It was a quiet Veterans Day session even though the stock market was business as usual while the bond markets took the day off. Traders said players were more willing to hold long positions over the weekend, but noted that volume was very light so buying was to be taken with a grain of salt.

That said, OSI Pharmaceuticals, Inc. joined the downswing in Eyetech Pharmaceuticals, Inc. after OSI Pharma said Thursday its board of directors was rethinking its buyout of Eyetech. Volume in both stocks was lighter than normal.

OSI Pharma shares reversed course Friday with a loss of $1.08, or 3.95%, to $26.27, while Eyetech stock lost another 38 cents, or 2.24%, to $16.62. On Thursday, Eyetech shares had lost nearly 6% on the prospects of OSI Pharma calling off the deal. Conversely, OSI Pharma shares rose 4.35% on the development.

OSI Pharma said it was concerned about competition for Eyetech's single drug in commercialization - Macugen, to treat age-related macular degeneration, or AMD - from Genentech Inc.'s Lucentis.

Coley still below IPO level

After making its first quarterly financial report since going public, showing a bigger loss than expected, Coley Pharmaceutical Group, Inc. shares were rather steady Friday.

Coley reported Thursday that its third-quarter net loss widened to $10.8 million, or 71 cents per share, from $9.8 million, or $9.87 per share, a year ago. Revenue more than doubled to $4.9 million from $2.1 million, largely due to a licensing agreement with Pfizer Inc. On the financial news, the stock lost at least 3% on Thursday.

On Friday, Coley shares dipped 7 cents, or 0.45%, closing at $15.52.

Wellesley, Mass.-based Coley priced its IPO on Aug. 10, selling the 6 million shares at $16.00 each - the upper end of the proposed range of $14.00 to $16.00 a share. The company develops drugs for cancers, infectious diseases and respiratory disorders. Concurrent with the IPO, Pfizer purchased 625,000 shares at the $16.00 issue price, for another $10 million in proceeds.

Coley gave guidance for a net loss of $38 million to $40 million for 2005 and forecast a cash balance of $140 million to $143 million at year-end.

The company has scheduled a conference call on Tuesday at 10 a.m. ET to discuss the quarterly results and to review phase 1b data for its Hepatitis C drug Actilon plus an update on Pfizer's plans to begin two phase 3 trials for their non-small cell lung cancer drug ProMune. In collaboration with Coley, Pfizer is expected to begin two phase 3 trials of ProMune by year-end.

King shares drop 5% more

King Pharmaceuticals, Inc.'s co-development pact with Pain Therapeutics, Inc. for Remoxy and other so-called abuse-resistant opioid painkillers was further criticized Friday, including downgrades to King shares that sent the stock spiraling.

Following a decline of close to 5% on Thursday, King shares on Friday lost another 77 cents, or 4.76%, to settle at $15.40.

"The JPMorgan analyst [Corey Davis] called the $400 million investment in a drug that should peak no high than $500 million in annual sales 'extremely pricey.' He also was concerned about King refusing to give guidance," said a buyside biotech analyst.

Remoxy is being developed as an abuse-resistant version of long-acting oxycodone. Remoxy, like Oxycontin made by closely held Purdue Pharmaceutical Corp., releases the narcotic oxycodone slowly over a matter of hours. But people have figured out how to extract Oxycontin's entire dose at once, producing a euphoric high, which is purportedly not possible with Remoxy.

King is paying Pain Therapeutics $150 million up front plus up to $150 million more in milestones based on progress in gaining regulatory approval for Remoxy. King, based in Bristol, Tenn., will also pay research and development costs and royalties to Pain Therapeutics, which is based in South San Francisco.

Pain shares cut on spike

Citigroup analyst Andrew Swanson upped his price target for Pain Therapeutics shares following the King Pharma deal, but on the spike seen Thursday he downgraded his recommendation to a sell. That did not stem the equity price gain much, as the stock added another 1.43% on Friday.

"In our view, this deal makes good sense for Pain Therapeutics, as it aligns them with a marketing organization, provides cash upfront, and reduces cash burn," Swanson said in the report. "As such, we no longer assume the company returns to the market for capital."

Swanson reduced his forecasts for Pain Therapeutics, including a lower royalty rate of 15% to 20% versus a previous 30%. But the 33% gain in the stock on Thursday was of concern to the Citigroup analyst. In terms of valuation, he said in the report, discounted multiple and discounted cash flow metrics support a $7.50 target price, versus a previous $6.50. But, given the strong move in the shares, he put a sell recommendation on the stock.

Pain Therapeutics stock rose 12 cents on Friday to end at $8.51.

Remoxy is delivered with a delivery platform developed by Durect Corp., pursuant to an agreement with Pain Therapeutics. Durect shares slipped by a nickel on Friday, or 0.92%, to close at $5.37 after seeing a 3.63% gain on Thursday.

Sangamo taps PIPEs market

Richmond, Calif.-based biotech concern Sangamo BioSciences, Inc. announced a $20.5 million equity transaction that consisted of a direct placement led by licensing partner Dow AgroSciences, LLC, a subsidiary of Dow Chemical Co., and $1 million to director Michael Wood.

Dow has agreed to purchase 5.08 million shares at $3.85 each, but Wood agreed to buy 235,849 shares at $4.24, the closing price on Thursday.

Sangamo shares Friday closed unchanged at $4.30 but traded in a range of $4.20 to $4.36 during the session.

"Smart move by Sangamo," said a sellsider familiar with the deal. "It looks like they will end the year with $48 million in the bank, 3.5 or 4 years worth. This removes any cash issue that large investors may have been concerned about and lets Sangamo focus on moving trials through phase 1, 2 and into phase 3."

Sangamo licensed its gene regulation technology to Dow AgroSciences in early October. Sangamo is working on the development of DNA-binding proteins for therapeutic gene regulation and modification, concentrating on zinc finger DNA-binding proteins. Its most advanced programs are currently in phase 1 clinical trials for evaluation of safety in patients with diabetic neuropathy and peripheral artery disease.

JMP Securities and Piper Jaffray & Co. were lead placement agents. Leerink Swann & Co. was co-placement agent.

VC angels taking flight

In yet another article supporting remarks of late that investors are paring investments in start-ups, a study by the University of New Hampshire's Center for Venture Research released this week shows venture capital investors are looking to more mature companies. The study found that less than half of angel money - 48% - is going to new companies with the remainder going to more established firms.

"It's not just VC investors," said a sellside biotech stock trader. "We see that trend in biotech stocks, too. Interest in the early stage biotechs comes in fits and starts, but the big picture says that investors want less risk."

The University of New Hampshire figure represents a downward trend from 59% of angel funds going to start-ups a year ago.

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