Genta off 15.5%; EpiCept off on PIPE; AnorMED steady; Diomed gains 28%; ImmunoGen higher

By Ronda Fears

Memphis, Aug. 31 - Biotech stock traders said there was a big sell-off in Genta, Inc. motivated by profit taking on a recent spike in the stock ahead of news expected next week on its leukemia drug Genasense. Otherwise, however, the sector was stronger Thursday, although volume was lighter as players begin filing out to start the long Labor Day weekend early.

That said, trading activity in Canada-based AnorMED, Inc. remained strong although the stock was little moved Thursday. The stock had nearly doubled the day before as its battle to fend off a hostile takeover bid from Genzyme, Inc. came to light and sparked a shorting frenzy.

AnorMED, of Vancouver, B.C., rejected a bid from Genzyme to buy all of its outstanding stock for $8.55 a share, or roughly $380 million, in cash - a premium of about 70% over the $5.02 close Tuesday. AnorMED shares (Amex: AOM) added 7 cents, or 0.71%, to close Thursday at $9.97 after a 97% spike the day before. Genzyme shares (Nasdaq: GENZ) slipped by 5 cents, or 0.08%, to $66.23.

Genta slides on profit taking

While trading activity lightened up Thursday, traders said shifts in strategy and positioning for anticipated news drove the sector. Genta was an example of hedge funds selling on gains seen recently that suggest positive news, but one trader said it doesn't matter how the news turns out.

Genta shares (Nasdaq: GNTA) dropped 28 cents, or 15.56%, to $1.52 on whopping volume of 13.1 million shares versus the norm of 2 million shares.

"This is some crazy selling volume. When it stops the price will easily skyrocket," the trader said.

"News is pending, like next week. The hedgies gradually began acquiring and pushed it up slowly for the last three days until it was around $1.90. The key to this strategy is after they decided it had gone up as much as was safe they began selling to drive it down. They had shorted the stock at the peak.

"It is something that is always a possibility with newsy, thinly capitalized speculative stocks when news is pending. It also doesn't matter what the news is, just that many true believers believe that it will be good. The hedgies are always out before the news ever arrives."

On Sept. 6, the Food and Drug Administration is expected to complete a review of Genta's proposal for a confirmatory trial of its Genasense injection for chronic lymphocytic leukemia. Berkeley Heights, N.J.-based Genta has revised its proposal to fully address all issues identified by the FDA and is working with the agency to clarify any issues prior to initiation of the trial.

ImmunoGen buoyed by funding

An extended funding commitment for ImmunoGen, Inc. from Sanofi-Aventis for $10.4 million, expected to last through August 2008, pushed the stock up, but there was only modest interest in the news, traders said.

ImmunoGen shares (Nasdaq: IMGN) added 14 cents, or 3.97%, to close at $3.67.

The collaboration between Cambridge, Mass.-based ImmunoGen and Paris-based Sanofi-Aventis has already taken one cancer drug candidate into clinical trials and two more are likely over the next year. The collaboration is focused on the development of novel antibody-based anticancer compounds.

RBC Capital Markets analyst Jason Kantor said the news helped minimize risk for ImmunoGen.

"We had not previously included this funding, so the extension is positive," Kantor said in a report Thursday.

"It maintains Immunogen's low cash burn and low financing risk for an additional 12 months. It signals high productivity within the partnership. And, it increases our confidence in the likelihood that Sanofi will push forward additional candidates into the clinic."

EpiCept buffeted, ends lower

EpiCept Corp. pocketed $10 million from a three-year senior secured term loan with Hercules Technology Growth Capital, Inc., which also received warrants for 471,000 shares exercisable at $2.65 apiece.

On the news, EpiCept shares (Nasdaq: EPCT) were lower, traded up to $3.13, and then late in the day took a dive to settle the session off by 2 cents, or 0.67%, at $2.97.

But one buyside player said it was an opportunity to buy into the story, which he sees as having a lot of upside potential.

"Instead of several other biotech companies, which have one or two products in early development stage, Epicept has several late-stage development products, e.g., Ceplene, LidoPain NP1 and LidoPain SP. Unfortunately, Epicept's poor presence makes it nearly impossible for a lot of folks to realize the potential," the buysider in Atlanta said.

"After EpiCept completes patient enrollment in the European phase 3 clinical trial for LidoPain SP, it is to expect the publication of good results next, because similar trials were already successfully finished in the past in the U.S., and already licensed to Adolor. I reckon that several good news points are coming up next. This includes LidoPain SP trial results, Ceplene filing and so on.

"As said, compared to other companies which have nothing but promises for some high risk products that may be on market in some years, EpiCept has already several late-stage products with high market potential and low development risks. So in my opinion, EpiCept is totally undervalued and a strong buy and hold."

Englewood Cliffs, N.J.-based EpiCept plans to use proceeds to advance Ceplene, its lead oncology compound for acute myeloid leukemia, LidoPain SP, a patch for post-surgical incision pain, NP-1 for chronic pain and LidoPain BP, a patch for recurrent lower back pain.

EpiCept has strategic alliances with Adolor Corp. for the development and commercialization of LidoPain SP in North America; and Endo Pharmaceuticals, Inc. for the commercialization of LidoPain BP.

Diomed gains on patent win

On news of a win it the patent dispute for its varicose vein treatment, medical devices concern Diomed Holdings, Inc. shares shot up sharply. The decision, the company said, will allow the case to move on to trial.

Diomed shares (Amex: DIO) added 28 cents on the day, or 28.43%, to end at $1.31.

"A significant windfall should result to Diomed from this ruling," a sellside trader said. "The upside looks strong from here."

Andover, Mass.-based Diomed said a judge in the case has ruled the patent for its EndoVenous Laser Treatment for varicose veins is valid and enforceable. The company had sued AngioDynamics, Inc. in January 2004 alleging patent infringement.

AngioDynamics shares (Nasdaq: ANGO) also were higher, edging up 12 cents, or 0.67%, to $18.12.

Insmed, Tercica trade up

In trading strategy, traders said they were noticing a shift in favorites among rival biotechs Tercica, Inc. and Insmed, Inc. - which have a patent battle under way over their competing hormone growth deficiency drugs - although both were higher on the day without any news.

Insmed has developed Iplex and Tercica has developed Increlex from an insulin-like growth factor-1, or IGF-1, process to treat children with growth hormone deficiency. They are in the middle of a patent dispute, which is slated to go to trial in November.

Tercica shares (Nasdaq: TRCA) were up 89 cents on the day, or 15.32%, to $6.70.

Insmed shares (Nasdaq: INSM) added 11 cents, or 9.91%, to $1.22.

One trader said that while his pick in the patent dispute is Tercica, there was a nice trade in Insmed that was difficult to resist.

"It's [Insmed] a poor choice for an investment, but a nice trade," he said.

"It's time to buy. As always, the market gives shorts a time to get out before they lose too much. It will take a long time for most investors here to recover their money. Perception is the name of the game and Insmed is perceived as a company with a small drug and only long term prospects. The litigation will be in the courts for years and that alone will taint this little company."

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