Cubist explodes ahead of Cubicin vote; Encysive advances; Seattle Genetics, Progenics gain on pact

By Ronda Fears

Memphis, May 25 - A broad-based recovery was under way in the biotech sector Thursday, and traders said it was mostly pure buying with a sprinkling of short covering as some players speculate the bottom of the trough.

"Shorts made a killing over the past couple of weeks," said one sellside trader. "It is looking like the worst is behind us maybe, but I don't think anyone is really willing to make that call today. We are also looking at a long weekend coming up and a short week next week, so I think tomorrow [Friday] will be more telling."

Big biotech Genentech, Inc. making a sharp rise was a good sign for the whole sector, the trader said. Genentech said Thursday it submitted a supplemental Biologics License Application with the Food and Drug Administration for Avastin in combination with taxane chemotherapy for locally recurrent or metastatic breast cancer patients who have not previously received chemotherapy. The company has requested priority review, which could mean a decision by November. Avastin is currently approved as a first-line treatment for metastatic colorectal cancer in combination with intravenous 5-FU chemotherapy.

Genentech shares (NYSE: DNA) gained $2.65, or 3.43%, to close Thursday at $80.

The other big biotech, Amgen, Inc., however, marked only a small gain in the face of the widespread rally, adding 9 cents, or 0.13%, to $68.16, on light volume of 7 million shares versus the norm of 8.85 million shares.

Cubist shares climb 10%

While FDA approval snafus have wrought severe damage to many biotechs of late, it hasn't totally put off the market with regard to seemingly sure-shots. Cubist Pharmaceuticals, Inc., for example, shot up 10% on Thursday, a day ahead of the anticipated FDA decision on its application for an expanded label for its antibiotic Cubicin.

Analysts in various reports this week have pointed to rising April sales data for Cubicin growth as a strong signal of growth even without an expanded label, but most are leaning toward approval for the broader use of the antibiotic.

"It's obvious what the bet was today but the volume was not that great so there was still some hedging of bets going on," said a sellside trader in Cubist shares. "If it doesn't happen, you'll see some heavy back-peddling."

Cubist shares (Nasdaq: CBST) gained $1.90 on the day, or 9.82%, to $21.25. Volume came to 1.15 million shares compared with the norm of 801,346 shares.

The company is requesting label expansion to Cubicin to include bacteremia and endocarditis. Merrill Lynch & Co. analyst David Munno said in a report that he believes there is a 65% to 75% probability for approval on Friday.

Encysive rebounds 16.5%

Shares of Encysive Pharmaceuticals, Inc. soared Thursday after the company announced it had reached an agreement with the FDA on its application for the pulmonary arterial hypertension drug Thelin, which hit a setback in March.

"Encysive and the FDA have come to the mutual agreement that the company's approach to responding to the items outlined in the approvable letter with our existing data set is reasonable, making possible the submission of a complete response," said Encysive chief executive Bruce Given, in a statement.

In late March, the FDA had issued Thelin an approvable letter, meaning that it believed the drug could be approved if certain conditions were met. That sent the stock reeling by nearly 50% because investors had expected full approval.

The implication that further trials may not be necessary to gain approval sparked buying back into Encysive shares (Nasdaq: ENCY), which shot up 63 cents, or 16.49%, to settle Thursday at $4.42.

"Encysive lost half its value when the FDA's approvable letter was made public. With today's events the stock value should soon recoup at least half of what it lost that day. If on that day the FDA had a much more favorable letter to Encysive the stock would be trading over $20 by now," said a buyside source in Boston. "Simply put, Encysive is a great buy here."

He also noted that with the huge price drop in Encysive shares many onlookers think the biotech could be a takeover target now.

Sellside analysts remained somewhat cautious about Thelin's prospects despite the news. Some anticipate further delays in Thelin's approval - from two to three months to as much as one to two years. But the Boston fund manager said he understands reluctance, given recent blowups in the biotech space, but he feels like Thelin will eventually be approved.

"At this point, I simply cannot see the FDA not accepting the complete response. It is curtains for Encysive if they don't," The buysider said. "Certainly, they can accept the complete response and still waffle. Nothing is ever certain with the FDA. So, we are just holding our position until the situation becomes clearer."

The company said Thursday it expects to hear from the FDA within 30 days as to whether information submitted is sufficient, thereby alleviating the need for any additional studies in order for approval for the drug.

Progenics, Seattle expand pact

Progenics Pharmaceuticals, Inc. and Seattle Genetics, Inc. on Thursday announced the expansion of their collaboration to accelerate the manufacture and development of Progenics' prostate specific membrane antigen antibody-drug conjugate.

Traders said the gains were part of the broader rally under way Thursday, but the news didn't hurt their moves.

Progenics shares (Nasdaq: PGNX) added 63 cents, or 2.99%, to $21.69.

Seattle Genetics shares (Nasdaq: SGEN) gained 24 cents, or 5.67%, to $4.47.

Under the expanded collaboration, Seattle Genetics will develop and optimize certain methods suitable for manufacturing and testing prostate-specific membrane antigen antibody-drug conjugate to support studies in humans. The new agreement is designed to accelerate development of this product by leveraging Seattle Genetics' prior experience in antibody-drug conjugate process development and testing.

Progenics is responsible for fees and milestone payments in addition to those already provided under the parties' existing collaborative agreement established in June 2005.

New River, Shire up on data

Shire plc and New River Pharmaceuticals Inc. rose Thursday on news from late Wednesday that two clinical trials on their experimental attention deficit drug NRP104 showed significantly reduced symptoms in children.

New River said the drug demonstrated statistically significant reduction in the symptoms of ADHD in children aged six to 12 years, according to the results of a phase 3 trial presented Wednesday at the American Psychiatric Association annual meeting.

Separately, New River said it started a late-stage ADHD clinical of the treatment in adults.

A sellside market source said that the price drop for New River over the past week or so was "people pricing in the possibility of a Schedule 2 drug classification versus Schedule 4." That seems to have been put to rest by the trial data, he said.

New River shares (Nasdaq: NRPH) gained $2.80, or 11.07%, to close Thursday at $28.10.

Shire shares (Nasdaq: SHPGY) added $1.37, or 3.14%, to $45.

Shire and New River signed a collaborative agreement for NRP104 in January 2005 that involved a $50 million upfront payment to New River plus $300 million in milestone payments depending on the characteristics of the FDA-approved product labeling. On FDA approval, Shire will retain 75% of profits for the first two years following launch and they will share the profits equally thereafter.

Angiotech ups 2006 outlook

Canadian medical device maker Angiotech Pharmaceuticals Inc. tightened its 2006 earnings forecast after closing its purchase of American Medical Instruments, Inc. in March, and also Thursday announced that it has agreed to buy closely held cosmetic surgery group Quill Medical Inc. for $40 million in cash plus future contingent payments.

In the United States, Angiotech shares (Nasdaq: ANPI) gained 31 cents, or 2.26%, to $14.04. In Canada, the stock (Toronto: ANP) added C$0.15, or 0.97%, to C$15.56.

Vancouver, B.C.-based Angiotech now expects 2006 adjusted earnings between 79 and 81 cents per share. In March the company slashed its forecast to between 76 and 84 cents per share. Revenue is now projected at $325 million to $335 million. For 2007, Angiotech forecast adjusted EPS of 90 to 95 cents, with revenue between $400 million and $425 million.

"It's all on the table now, very nice outlooks for '06 and '07, favorable year-over-year growth rates and dynamite EPS projections," said a market source in New York. "With even a PEG [price/earnings to growth] rate of 1 times, this stock should be $16 to $18 bucks based on '07 estimates. Buying today at $14-plus makes for a very compelling total return on a diversified medical products portfolio."

Angiotech derives much of its revenue from Boston Scientific Corp. in royalty payments on sales of drug-eluting stents, which are drug-coated mesh tubes used to prop open arteries.

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