Threshold, Discovery Labs gain on widespread deal speculation; Curis better; Genzyme gains 3%

By Ronda Fears

Memphis, Sept. 14 - With no news spurring the surge in Threshold Pharmaceuticals, Inc., one trader characterized it as mostly speculation related to a takeover or partnership news rumored to be forthcoming. Discovery Laboratories, Inc. was another strong gainer in the session on renewed noise about a deal in the offing.

A buyside market source remarked Threshold was "was over-shorted, over-sold, and over-punished," but the buying Thursday in the stock was largely related to "takeover/partnership rumors in the broad market."

Threshold shares (Nasdaq: THLD) added 50 cents on the day, or 22.73%, to end Thursday at $2.70.

"The Sept. 7 webcast spurred interest as this was the first time Threshold prominently mentioned Baxter's involvement in glufosfamide (this was previously buried in the 10-K, but with less details)," the buysider said, referring to Baxter International Inc.

Moreover, he continued, "Sometimes the market loves to speculate on early stage novel therapies, and Threshold's claimed lab cure rate of 50% in pancreatic and prostate cancers excites the dreamers."

Redwood City, Calif.-based Threshold is conducting phase 3 trials of glufosfamide as a second-line treatment for pancreatic cancer and phase 2 trials of it in conjunction with gemcitabine as a first-line treatment for pancreatic cancer. It also is investigating glufosfamide in breast cancer and has other cancer drugs in early development.

After reporting a wider second-quarter loss in August, Threshold announced it would lay off about a third of its work force, including its chief financial officer. At that time the company also adopted a poison pill, which perpetuated chatter about a potential takeover.

Discovery Labs gains 13%

Warrington, Pa.-based Discovery Labs has been exploring strategic alternatives through Jefferies & Co. for roughly three months following a battering the stock took in the spring when it failed to get approval for its respiratory antibiotic Surfaxin in premature infants because of manufacturing issues that surfaced at the Food and Drug Administration.

"A deal is in the works," remarked a sellside trader, declining to elaborate on any specific chatter about Discovery Labs.

Discovery Labs shares (Nasdaq: DSCO) have been on an upswing for several straight sessions, gaining Thursday by 24 cents, or 12.97%, to $2.09.

A buyside source said the Discovery Labs move appeared to be nothing more than "a nice trade" on volatility.

"Without news, you never can be sure if there is something real that has the herd stampeding again or just the usual random motion that is sometimes precipitated by a stray pump," the buysider said. "We all know news, good or bad, is long delayed and there are lots of easy riders waiting."

On a broader note, however, the trader said that when Genentech, Inc. reports earnings "it could be the catalyst to spark a rally throughout biotech and pharma."

Genentech shares (NYSE: DNA), which have eased this week, got a lift Thursday on sellside buy recommendations, adding 41 cents, or 0.53%, to close out at $78.10.

Curis up 9.5% on show talk

In more deal-maker speculation, Curis, Inc. got a nearly 10% rise out of its announcement in a Securities and Exchange Commission filing that it intends to conduct meetings with third parties from time to time.

Curis shares (Nasdaq: CRIS) were better by 15 cents, or 9.55%, to close at $1.72 with 901,297 shares traded versus the norm of 376,642 shares.

"There was nice volume plus a nice closing price. This says a lot about what is coming. We will see more activity in the next days," said a sellside trader.

"There's lots of upside potential for Curis. Curis is working on cutting edge medical technology and has solid alliances with major pharma companies - Genentech and P&G [Proctor & Gamble Co.] are supporting and working with Curis. We are going to see more positive stuff. People don't want to miss the boat."

Earlier this month, Curis lost ground after announcing it has decided to opt out of a co-development agreement with Genentech for a basal cell cancer drug candidate, which had already been a disappointment in trials. Genentech may still develop a drug with Curis technology, however, in which event Curis would get royalties.

By backing out of co-developing the drug, the trader added, Curis management is saving about $20 million in development costs that can be spent in other ways. But now the company is apparently looking to conjure up some new interest from potential partners and/or investors, he said.

Genzyme up, Serono easier

Elsewhere, trial data accounted for the big movers during the session, which generally was weaker for biotechs although traders noted there were no huge losers Thursday. Genzyme Corp. was higher on interim results of a trial that showed its drug Campath reduced the rate of relapse in multiple sclerosis by a significant amount compared with Serono SA's rival drug Rebif.

Genzyme shares (Nasdaq: GENZ) added $1.80 on the day, or 2.7%, to $68.35.

Geneva-based Serono saw its shares in the United States (NYSE: SRA) slip by 20 cents, or 1.13%, to $17.52.

But, Merrill Lynch analyst Eric Ende said in a report Thursday said pricing for Campath in MS, which is dosed at about 1/18th that of Campath for chronic lymphocytic leukemia, remains the biggest challenge to its commercial success in MS.

As a result, the analyst said Cambridge, Mass.-based Genzyme may be challenged to adjust its pricing scheme to optimize profitability for the drug in both MS and leukemia.

Elan, Novartis both lose

Other MS drug developers - Elan Corp. plc, Biogen Idec, Inc. and Novartis AG, with news of its own out on a new MS drug - were lower on the Genzyme news.

Dublin-based Elan, which is developing the troubled MS drug Tysabri with Cambridge, Mass.-based Biogen, took the biggest hit.

"Elan is a one-trick pony that looks to be out of the race, scratched," said a sellside trader.

Elan shares (NYSE: ELN) fell 51 cents on the day, or 3.22%, to $15.33.

Biogen shares (Nasdaq: BIIB) lost 28 cents, or 0.64%, to $43.39.

Swiss pharmaceutical giant Novartis, which obviously has wider wings in the drug development area, was the least affected, although some onlookers were expecting more of a lift from its news on the tape. Novartis shares (NSYE: NVS) eased by 2 cents to $57.11.

Novartis reported late Wednesday that phase 2 data of its multiple sclerosis drug FTY720 demonstrated significant benefits in the treatment of various relapsing forms of multiple sclerosis. Novartis licensed FTY720 from Mitsubishi Pharma Corp.

Synovics steady on news

Elsewhere, Synovics Pharmaceuticals, Inc. stock was steady Thursday on news it has requested an extension on the maturity date of a 9% convertible bridge note issue.

The notes had been due on Sept. 1, 2006, but the company hopes to extend the maturity to Nov. 1.

In exchange for the extension, Synovics will pay the default rate of 18% for the extension period and will reduce the strike price of warrants originally issued to the holders to $2.50 from $3.00.

The notes mature on April 3, 2009, and are convertible at $2.50 each.

Phoenix-based Synovics develops oral controlled-release generic drugs.

Synovics shares (OTCBB: SYVC) were unchanged Thursday at $2.50.

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