PDL, OSI Pharma, Biogen dive; Altus IPO launches, Vertex eases; Novogen shelves Glycotex IPO

By Ronda Fears

Nashville, Jan. 11 - Genentech, Inc was largely blamed for putting the skids on interest in the biotech sector Wednesday and, in particular, the Big Biotech's drug partners like PDL BioPharma, Inc., Biogen Idec, Inc. and OSI Pharmaceuticals, Inc. were punished most severely.

"It was devastating," said one sellside biotech stock trader of the more than 4% drop in Genentech (NYSE: DNA) shares. He added that the impact to Genentech's market cap was "catastrophic," plummeting by "around $5 billion just today to $94 billion."

Contributing to the pullback in biotech stocks Wednesday, a couple of traders also mentioned a report from Merrill Lynch & Co.'s biotech research team that showed indicators for the sector had done an about-face. In the report, Merrill analysts said near-term prospects of the biotech sector have weakened with a score of minus 2 versus a prior score of plus 2.

One trader also pointed to several views in circulation this week showing demand for biotech stocks is "modest at best" with meager gains in fund flows to the sector, and, while aftermarket performance of biotechs making follow-on offerings has been solid, debut stocks have performed very lackluster.

"Bottom line is that the appetite for high-risk biotech names is very slim," the sellside trader said.

There were a couple of items on the wires about initial public offerings, too, with bipolar slants. While there were some players taking the launch of the Altus Pharmaceuticals Inc. IPO as a positive signal, the spinoff IPO of Glycotex Inc. from Novogen Ltd. (Nasdaq: NVGN) was shelved.

PDL, OSI fall with Genentech

Genentech shares led the downward spiral, though, plunging more than 4% on downgrades to the stock by several bulge bracket firms on the heels of its earnings after Tuesday's close, although there were some like Jefferies & Co. suggesting the Big Biotech was still a "solid" biotech pick and recommended buying on the weakness.

For the day, Genentech shares lost $4.12, or 4.41%, to settle at $89.22 and sank further in after-hours activity. At 4:29 p.m. ET the stock was seen off another 7 cents, or 0.08%, at $89.15.

Amgen Inc. (Nasdaq: AMGN), the neck-and-neck contender for the top biotech spot with Genentech, was weaker Wednesday as well, but Amgen does not report fourth-quarter and 2005 results until Jan. 26. Amgen shares slipped 17 cents, or 0.22%, to $77.81.

Even though Genentech reported a 54% gain in non-GAAP earnings and a 46% rise in product sales, several analysts expressed disappointment in its drug figures, particularly for the cancer drug Avastin.

PDL BioPharma (Nasdaq: PDLI), formerly Protein Design Labs, Inc., a partner with Genentech on Avastin, was hit hard, losing $1.27, or 4.03%, to $30.21. Genentech reported that fourth-quarter sales of Avastin rose 89% to $359 million and for all of 2005 more than doubled to $1.1 billion, but several sellside analysts panned the figures compared to what they had expected. PDL reports earnings Feb. 27.

OSI Pharma, a partner with Genentech on the cancer drug Tarceva, also declined, but it also suffered from issuing lower guidance for its eye treatment Macugen. Genentech reported that Tarceva sales in 2005 increased to $274.9 million from $13.3 million in 2004 following its approval on Nov. 18, 2004. Sequential quarter-over-quarter Tarceva sales increased 15% to $83.9 million. OSI Pharma (Nasdaq: OSIP) shares lost 94.99 cents, or 3.28%, to $28.0101.

Rituxan suit adds injury

In another blow, The Associated Press reported Wednesday that a former Genentech employee has accused the company and marketing partner Biogen of illegally promoting cancer drug Rituxan as a treatment for rheumatoid arthritis, a use not yet approved by regulators.

Biogen (Nasdaq: BIIB) shares Wednesday dropped 43 cents, or 0.9%, to $47.53.

Rituxan was Genentech's biggest product in terms of sales figures for 2005, topping $1.8 billion - a gain of 16% from 2004. In its earnings report, Genentech said fourth-quarter Rituxan sales rose 13% to $484.4 million from fourth-quarter 2004.

The Food and Drug Administration approved Rituxan in 1997 as a treatment for non-Hodgkin's lymphoma, but Genentech is studying the drug's effect on several other conditions, including RA. According to an April 2005 article in the publication "Arthritis News," Genentech is working with Biogen, which developed Rituxan, and Roche Holdings AG (VTX: ROG) to study Rituxan's effects on RA.

Biogen and Genentech have applied for FDA approval to market Rituxan as an RA treatment, and a decision is expected by late February.

Vertex retraces day's gains

Early Wednesday, Vertex Pharmaceuticals, Inc. was higher on a couple of positive points, traders said, but the weight of the biotech sector eventually dragged the stock lower to close in negative territory.

One trader on the sellside early in the day attributed a rise in Vertex shares by as much as 1.35% close to noon to it having its research arms in HIV, and several HIV names rose earlier in the week on comments from executives with Gilead Sciences Inc. at the JPMorgan conference in San Francisco to the effect that the company is on the hunt for acquiring or licensing new products in the HIV area.

Cambridge, Mass.-based Vertex engages in the discovery, development and commercialization of small molecule drugs for HIV infection, chronic hepatitis C virus infection, inflammatory and autoimmune disorders, cancer, pain and bacterial infection.

Not only is Vertex an HIV play, the trader said, but it also is expected to pocket some cash through the IPO of its former subsidiary Altus Pharmaceuticals, Inc.

Vertex shares, which hit a new high of $34.25 on Monday, traded up to $34.98 intraday but eased back to close Wednesday off by 11.9 cents, or 0.35%, at $33.921.

Altus slated for late January

Altus Pharma, a subsidiary of Vertex Pharmaceuticals Inc. until 1999, on Wednesday launched its IPO of 6 million shares at a price range of $14 to $16 per share with pricing slated for the week of Jan. 23 via joint bookrunners Merrill Lynch & Co. and Morgan Stanley.

Cambridge, Mass.-based Altus plans to use proceeds, estimated at $90 million at the midpoint of price talk, for drug development and general corporate purposes. Its lead candidates are ALTU-135 for malabsorption due to exocrine pancreatic insufficiency in cystic fibrosis patients and ALTU-238 for growth hormone deficiency.

Vertex will reduce its equity stake in Altus to 12.7% from 17.4% through the IPO. Altus' largest pre-IPO shareholder, Warburg Pincus Private Equity VIII LP, will cut its stake to 20.8% from 29.3%.

Post-IPO, there will be roughly 20 million shares of Altus stock outstanding.

At Sept. 30, Altus said its accumulated deficit was $112.1 million.

Glycotex IPO delay cheered

Novogen announced Wednesday that its U.S. subsidiary Glycotex, Inc. is postponing its IPO until later this year, without any further explanation. Initially the news sent Novogen shares higher but it too fell victim to the downdraft in the biotech sector when all was said and done.

"Whatever the reason for the withdrawal of the IPO, I applaud it. It seemed to me that, if you are to believe all the hype that they were selling for a song, I say it's better for all Novogen shareholders to retain that value," said a Novogen holder based in New York.

"Clearly, [Novogen] management is of the view that they have sufficient operating capital to last quite some time, including for the pivotal phenoxodiol trial which they have estimated will cost in the order of A$10 million."

Both Glycotex and Novagen are based in North Ryde, New South Wales, Australia. Glycotex is focused on drugs for human wound healing and tissue repair. Novogen conducts research and development of drugs derived from its phenolic technology platform. The cancer drug phenoxodiol is being developed by the company's listed subsidiary Marshall Edwards Inc. (Nasdaq: MSHL), also based in North Ryde.

Novagen shares traded up to $18.17 on Wednesday but settled the day off by 24 cents, or 1.33%, at $17.75. Marshall Edwards shares closed off by 75 cents, or 10.5%, at $6.38.

Glycotex had proposed offering 3.75 million common stock units with a greenshoe of 562,500 units at $8 to $10 per unit. Net proceeds, estimated at $30.07 million at the mid-point of the price range and $34.78 million with the greenshoe, had been earmarked for operations and general purposes.

Glycotex intends to refile a registration statement later in 2006, Novogen said, as the company wants to further advance its development program.

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