Viacell plunges on suspending study; StemCells rises on new filing; Inex drops on note demand

By Ronda Fears

Nashville, Sept. 19 - Controversy over stem cell research resurged Monday and had players split between Viacell Inc. and StemCells Inc. Viacell plunged sharply after suspending a cord blood stem cell study for cancer treatment, while StemCells moved up after re-filing plans to begin trials for human neural stem cells to treat Batten disease.

Meanwhile, one of the other of a handful of stem cell research firms, Geron Corp., continued to rise in the wake of a follow-on stock offering last week. Geron priced 6 million shares at $9.00 per share - discounted roughly at 1% - and included an $18 million capital infusion from Merck & Co., which together were taken by market onlookers as a strong sign for players' reaction to biotech equity deals. Geron shares Monday rose 34 cents, or 3.38%, to $10.39 in the face of the conflicting news from Viacell and StemCells.

Another name from last week's deal flow, Progenics Pharmaceuticals Inc., saw little reaction to news that GlaxoSmithKline plc had halted its HIV drug trials, as has Schering-Plough Corp.

For this week, players are looking for follow-on stock offerings from GTx Inc. and Renovis Inc., with chatter that a couple of similar spot deals could pop up, as well as the initial public offering of Sunesis Pharmaceuticals Inc. after a six-week dry spell for IPOs.

Memphis-based GTx shares lost 5.5 cents, or 0.52%, to close Monday at $10.535. Renovis shares dipped 12 cents, or 0.88%, to close at $13.50.

As well, Houston-based Cyberonics Inc., which has drugs in development for epilepsy and depression, was in the market with a $125 million debt offering.

Cyberonics loses 5% on deal

Cyberonics launched after the close a $125 million convertible note offering that was being pitched to carry a coupon of 2.5% to 3.0% and initial conversion premium of 27.5% to 32.5%.

The stock closed off 4 cents on the day, or 0.11%, at $35.90, but as news of the deal hit the tape, the stock was seen in after-hours trade plunging $1.80, or 5.01%.

The seven-year, non-callable senior subordinated bonds are scheduled to price after the close Wednesday. Merrill Lynch & Co. is bookrunner of the Rule 144A deal, which is being sold with registration rights.

Cyberonics is involved in medical devices for the treatment of epilepsy and other debilitating neurological and psychiatric diseases and disorders. The company is conducting clinical studies of a therapy system for the treatment of depression in patients with depressive episodes that have not responded to standard treatments. It has products for epilepsy in distribution worldwide.

Viacell plummets 21.58%

Viacell took a sharp dive Monday on a huge sell-off in response to the company suspending enrollment in the phase I clinical trial for its CB001, a proposed cord blood stem cell product to treat a variety of cancers.

On heavy volume, the stock plunged $1.39, or 21.58%, to $5.05. Some 2.54 million shares changed hands, versus the three-month running average of 388,043.

The company said it suspended the trial because two of the eight patients completing the study experienced Grade IV acture graft-versus-host disease. ViaCell said it plans to review these cases and relevant data with the FDA and the institutional review boards for the clinical trial sites.

While selling was heavy in Viacell shares, there were some faithful buyers adding to positions on the weakness.

"My faith is in stem cells, but you cannot be sure if embryonic will replace umbilical or only supplement them over time," said a buyside analyst, although he said his trader was buying Viacell on Monday.

"I see that [trial suspension] as only a temporary setback based upon the first initiative. Cord cells are generally safer than other bone marrow transplant procedures in cancer patients, but in rescue therapy, we have no alternatives as a mission of last hope. It is very sad that this has not yet been a success, but it is to Viacell's credit that they are trying.

"I believe eight patients are involved. Two got sick, and six went through the treatment. All are now recovered (in terms of the safety of the treatment). I will take my chances and check with you in six months."

StemCells up 7% after hours

The huge sell-off of Viacell shares also was no damper for its peer StemCells Inc., which got a nice bounce from its amended filing for a clinical trial of its human neural stem cells as a treatment for Batten disease, a rare and fatal neurodegenerative genetic condition affecting infants and children.

StemCells shares rose 3 cents on the day, or 0.61%, to close at $4.93 but traded as high as $5.08 during the session. The stock was more than 7% higher in after-hours trade on data released by the company after the closing bell.

StemCells filed an amended initial Investigational New Drug application with the Food and Drug Administration to begin the trial in third quarter, as the company had indicated earlier this year.

Now is the time to buy, fans of StemCells said.

"Many doubted they could pull off a re-file in time. I saw many suggesting time was running out," said a buyside market source.

"They are doing what they do with a small market cap of $250 million. That says a lot. These guys are determined, hungry and not easily dissuaded. Not only do we have a great foot in the door on the stem cell sector, via patents and intellectual property, but all the other [commendable] progress these guys are making."

After the close, StemCells released study data that sent the stock soaring.

StemCells said results of a published study demonstrates that its proprietary human neural stem cells restore the lost motor function of mice with spinal cord injuries, and also is the first to show the causal relationship between transplanted human neural stem cells and long-term recovery of motor function.

In after-hours trading, the stock was seen higher by 35 cents, or 7.1%.

Progenics off as impact mulled

Progenics' impact from halted HIV drug trials by GlaxoSmithKline plc and the implications for its own HIV drug in trials was being pondered Monday but with no big reaction to Glaxo's news.

Activity in Progenics shares, traders said, was still high but the stock was little changed. Most of the trading, in fact, was still related to the follow-on stock offering from last week. Progenics shares added 9 cents on the day, or 0.37%, to $24.14.

Analysts continued to push Progenics shares as a buy in reaction to Glaxo's news, which was up slightly on the day. Glaxo stock gained 35 cents, or 0.7%, to $50.00.

Glaxo halted a phase III trial of its small molecule CCR5 entry inhibitor, aplaviroc, for HIV due to liver toxicity problems similar to cardiac toxicity problems Schering-Plough Corp. experienced with its CCR5 inhibitor, SCH-C, which also was discontinued in trials. Schering-Plough shares lost 11 cents on Monday, or 0.52%, to $20.89.

On a view that the toxicities of CCR5 small molecule inhibitors may be due to non-specific interactions with other related receptors and cytokine toxicity, Merrill Lynch analyst David Munno said he does not believe the toxicity will translate to Progenics' PRO140, a humanized monoclonal antibody inhibitor of CCR5. Thus, removing the Glaxo and Schering products could reduce competition for PRO140, if approved.

Inex shares plunge 28%

Canada-based Inex Pharmaceuticals Corp. shares fell on news that noteholders have demanded repayment of about US$24 million in convertible notes by Wednesday.

Inex shares fell C$0.07, or 29%, to close at C$0.18 on the Toronto exchange, amid heavy volume. In the United States, however, the over-the-counter stock was not traded, and closed at 21.91 cents.

Inex revealed Monday that it received at the close of business Friday a demand letter for repayment from Stark Trading and Shepherd Investments International Ltd., alleging default. The Stark group is a majority holder of the convertible debt issued by subsidiary Inex International Holdings Ltd.

Other holders of the notes have not served a similar notice, but the Stark group has demanded repayment of US$24.6 million by Sept. 21, Inex said.

Inex, which has been in restructuring negotiations with the Stark group since December, asserts it is not in default of the notes. As of June 30, Inex said there is about US$32.7 million in promissory notes due April 2007 that were originally issued to Elan Corp. plc in April 2001 and subsequently were bought from Elan by certain institutional investors in April 2004.

There is no cash interest payable during the term of the notes, but the notes can be converted at the holder's option into Inex shares at predetermined conversion prices of US$5.71 and US$5.07.

At June 30, Inex reported C$15.2 million in working capital and said it is committed to ensuring that this capital will be sufficient to pay all debt well past the maturity date of the notes.

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