OSI punishment over Eyetech buy continues; NPS up; PDL plunges; Genta; Favrille, Illumina all higher

By Ronda Fears

Nashville, Jan. 12 - OSI Pharmaceuticals, Inc. saw another dive Thursday as biotech players took a dim view of the story on the heels of losses after it warned of a lower top-end range for sales of the eye treatment Macugen for 2005 than previously expected.

"This is all short selling, like adding wood to the fire," said a sellside trader. "A lot of the big guys are saying the stock will be down further tomorrow [Friday]. Looks like people haven't gotten over the Eyetech thing yet."

Another trader, however, said that with asks getting taken out amid a surge in volume during the last half-hour of trade Thursday, there could be an upswing in the stock on Friday. He also noted that there was at least one bulge bracket firm saying OSI could be the turnaround story of 2006, which might fuel a rise ahead of the long weekend as the markets will be closed Monday in observance of Martin Luther King's birthday.

Melville, N.Y.-based cancer-focused OSI was lambasted last year when it moved to take over Eyetech Pharmaceuticals, Inc., and the pain increased with its earnings, which included a dimmer outlook for the drug Macugen, a treatment for age-related macular degeneration, that it inherited with Eyetech. On Wednesday, OSI said 2005 sales of Macugen now are expected to range from $183 million to $185 million, versus its previous forecast of between $175 million and $190 million.

OSI, a partner with Genentech on the cancer drug Tarceva, also was still feeling the ill effects of the market's reaction to Genentech earnings mid-week. 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 shares (Nasdaq: OSIP) lost $1.01 on the day, or 3.61%, to settle Thursday at $27.

Genentech shares (NYSE: DNA) continued to slide, losing another $3.08 on Thursday, or 3.45 %, to close at $86.14.

Takeover targets hard to hit

A handful of what the sellside trader referred to as prime biotech takeover targets were very active Thursday, too. Specifically he mentioned NPS Pharmaceuticals Inc., Vertex Pharmaceuticals Inc., PDL BioPharma Inc. and Onyx Pharmaceuticals Inc. But he said the market's read on this type of speculation is very erratic, noting the stocks were widely mixed.

"It's just something to get through the day on, this kind of noise," the trader said. "There isn't any hard news on this anywhere. It's speculation and you can take that for what it's worth."

Salt Lake City-based NPS Pharma, focused on bond, gastrointestinal and central nervous system disorders, was presenting at the JPMorgan conference in San Francisco on Thursday, too. NPS Pharma shares (Nasdaq: NPSP) shot up 73 cents, or 5.06%, to $15.15.

As for NPS Pharma, a buyside market source said: "I was going to sell to take the tax loss and buy back. Glad I didn't, I would've missed the move. As for what is driving this move up, it could be traders buying back their wash sales, coupled with short covering. Takeover rumors have been around forever on this stock so I can't imagine that's the only driving force here."

Fremont, Calif.-based PDL BioPharma, formerly Protein Design Laboratories, Inc. is involved mostly in cancer, autoimmune and inflammatory diseases. PDL BioPharma shares (Nasdaq: PDLI) lost $1.57 on the day, or 5.2%, to $28.64. A Citigroup downgrade to PDL Biopharma shares on Thursday to hold from buy was a factor, as the firm cited valuation concerns against its price target of $34.

A PDL BioPharma holder, the buysider quoted above was unfazed, though, remarking, "There's been an 8% drop in this stock in two days. They are paying dearly for this over-reaction. Don't be surprised if some analyst comes back with a buy due to overselling."

Emeryville, Calif.-based Onyx is focused on cancer drugs. Onyx shares (Nasdaq: ONXX) declined 78 cents, or 2.76%, to $27.51. Traders also noted that the company was slated to present at the JPMorgan event late Thursday afternoon and is scheduled to report financial results Feb. 1.

Genta gains over 7%

Genta Inc. was sharply higher with no news on the wires, but players noted heavy volume pushing the stock up more than 7%.

"This stock has a lot of upside over the next few months and possibly sooner," said a Scottsdale, Ariz.-based buyside player in Genta. "The company has a trailing price-to-earnings ratio of only 6.89 and a market cap of $187 million. They have $28 million in cash and a profit margin of 62%. Volume is picking up, too."

Berkeley Heights, N.J.-based Genta on Jan. 3 announced its filing of a New Drug Application to the Food and Drug Administration for its lead anticancer drug Genasense. The application proposes the use of Genasense plus fludarabine and cyclophosphamide as treatment for patients with relapsed or refractory chronic lymphocytic leukemia.

Genta is seeking fast-track status for Genasense, too, the buysider said. Furthermore, he said the company said recently that it expects European Union regulators to begin reviewing a marketing application for Genasense as a skin-cancer treatment later in January.

"This stock is looking good as a nice biotech speculation heading into the big conference season in February and March - traditionally the best season to own biotech," the buysider went on to say.

"If this company finds a partner - or is bought out, or simply gets picked up by the rumor mill prior to the big biotech conferences - it will be revalued by the market somewhere between $6 and $10, almost overnight. If it gets approval, there is no telling how high the share price will go."

Genta shares (Nasdaq: GNTA) gained 13 cents, or 7.43%, to $1.88 on Thursday. Some 10.5 million shares changed hands, versus the norm of 2.2 million.

Favrille lifted on fast-track

Favrille, Inc. took a leap Thursday after announcing that the FDA granted a fast-track designation to its FavId, its lead product candidate for B-cell follicular non-Hodgkin's lymphoma, which is being tested with Genentech's Rituxan.

The news put Favrille at the top of the biggest percentage gainers list on the Nasdaq, where the stock (Nasdaq: FVRL) shot up $1.35, or 33.4%, to $5.39 on massive volume. That was actually off the day's high of $6, which one trader said was down from a pre-market level of $6.90.

Favrille debuted about a year ago with its initial public offering at $7, well below the proposed range of $12 to $14, the trader said, so "this move really heartened some of the ones who have held on."

San Diego-based Favrille said the fast-track designation means the FDA will expedite the development and review FavId, which is currently in a phase 3 clinical trial with patients who already received Rituxan. The company expects to begin releasing information on the trial's secondary endpoint, response improvement, later this year with primary endpoint data by the second half of 2007.

Illumina shines on two bits

Illumina, Inc. had two bits of news Thursday on the wires that, along with its appearance at the JPMorgan conference, sent its shares soaring.

Illumina shares (Nasdaq: ILMN) shot up $1.39, or 7.84%, to $19.12 on Thursday.

San Diego-based Illumina, which makes tools for the analysis of genetic variation and function used by the biotech industry, announced that Genizon BioSciences has signed up to use its genotyping technology for disease-association research and that North Shore-Long Island Jewish Health System will use its whole-genome genotyping solutions to support study of inflammatory bowel disease.

Some onlookers were skeptical, however.

"The stock seems way ahead of itself," said a sellside trader on the West Coast. "They have no debt, but also no profits. They do have about $50 million is cash but the stock is now approaching 12 times revenue, which a company deserves if they are growing revenues at something like 100% per year. Illumina is not growing at near that rate and won't be any time soon."

Illumina is scheduled to release 2005 results on Feb. 1.

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