Discovery Partners up 9% on MedImmune, Infinity pact; EPIX plunges; Sinovac soars; PDL up

By Ronda Fears

Memphis, Aug. 28 - Biotech traders were encouraged by an extension of the gains chalked up late last week into Monday's action but were still a tad hesitant as they do not expect a big swing in volume until after Labor Day.

While collaborations impacted a handful of names to the upside, Chinese concern Sinovac Biotech Ltd. got a huge lift on news of positive trial data for its avian influenza vaccine, but, to the downside, EPIX Pharmaceuticals, Inc. plunged on another Food and Drug Administration rejection for its blood imaging agent Vasovist.

"We are still more than 100 points off the highs we saw in the spring, but we're feeling like we are on pretty solid footing going up from here," said an equity trader at one of the bulge bracket firms.

"The only thing lacking is strong volume, and we won't see that until after the [Labor Day] holiday, when everyone gets back from summer vacations and we start looking at winding up the year. I think that will also help the [new deal] calendar, too."

Also of note in biotech circles, Genentech, Inc. and Biogen Idec, Inc. announced positive results from a phase 2 trial of Rituxan in relapsing-remitting multiple sclerosis, but those stocks were not heavily traded or moved up much by the news. Genentech shares (NYSE: DNA) added 2 cents, or 0.02%, to $80.02 while Biogen shares (Nasdaq: BIIB) rose 46 cents, or 1.04%, to $44.74.

Sinovac soars over 20%

Looking to the swiftly oncoming flu season also boosted Sinovac Biotech Ltd. as one of the day's biggest gainers after it reported that preliminary results of a phase 1 trial for its pandemic H5N1 avian flu vaccine showed high safety marks. The stock continued to gain in after-hours activity, adding almost another 13%.

"Bottom line is risk has significantly dropped. A flu season drug run-up is imminent, and the likelihood of a successful phase 2 trial makes a short position too risky," said a buyside market source in Florida, who has an $8 target on Sinovac shares.

"This is far from a blockbuster, but a government partnership with a market the size of China is certainly reason enough to hold a long position off support at $2. I do not think we will revisit the low $2s again. My personal view is that we may touch the $2.70s range, then have to wait for a sector push to move up to the $4s."

Sinovac shares in the United States (Amex: SVA) shot up 41 cents, or 20.29%, to close the regular session at $2.43 and then in after-hours trade added another 31 cents, or 12.76%, to $2.74. Volume was gigantic in the stock, with some 1.17 million shares traded versus the norm of 178,118 shares.

Beijing-based Sinovac said preliminary result of its avian flu vaccine proves that with different dosages it can induce an immune response upward of 78.3%, exceeding the 70% minimum criteria for seasonal flu vaccines.

Bird flu vaccine names BioCryst Pharmaceuticals, Inc., AVI Biopharma, Inc., Nastech Pharmaceutical Co. Inc. and Generex Biotechnology Corp. also were higher on the day, while other peers Vical, Inc., Novavax, Inc. and VaxGen, Inc. were lower.

EPIX Pharma plunges 13%

There were a few moving to the downside, one of the biggest of which was EPIX Pharmaceuticals after announcing Monday that the FDA not only turned down its appeal to get an approval for its blood imaging agent Vasovist but also suggested two new clinical trials.

"It's like strike one, strike two, strike three, you're out," said a sellside trader.

EPIX shares (Nasdaq: EPIXD) dropped 93 cents on the day, or 12.9%, to $6.28.

Cambridge, Mass.-based EPIX said it has received a letter from the FDA denying its formal appeal to approve Vasovist and turning down a request for an advisory committee review, which it submitted on June 30 in response to two prior approvable letters for Vasovist that suggested additional clinical research to support approval. The drug has been approved in Europe and is marketed with Schering AG. It also has been recommended for approval in Australia.

Earlier this month, EPIX completed its previously announced merger with Predix Pharmaceuticals Holdings, Inc., which withdrew its plans for an initial public offering in October 2005. In connection with the merger, EPIX effected a 1-for-1.5 reverse stock split.

The combined company has a broad pipeline of product candidates, an experienced management team and about $114 million in cash and marketable securities as of June 30. In addition, the combined company has five drug candidates in clinical trials.

MedImmune modestly higher

While MedImmune, Inc. and private biotech Infinity Pharmaceuticals, Inc. did not see much gain from their $500 million research pact, Infinity's would-be parent in a pending merger, Discovery Partners International, Inc., soared by more than 9% Monday on the news.

MedImmune shares (Nasdaq: MEDI) added 27 cents, or 0.95%, to $28.65.

Discovery Partners shares (Nasdaq: DPII) shot up 30 cents, or 9.32%, to $3.52.

Gaithersburg, Md.-based MedImmune inked a pact with Infinity to jointly develop and commercialize novel small molecule cancer drugs targeting Heat Shock Protein 90 and the Hedgehog cell-signaling pathway. MedImmune will pay $70 million upfront, plus make up to $430 million in future milestone payments.

"The upfront payment alone is almost equal to Discovery Partners' market cap. This deal is big," said a buyside market source in Boston.

"I think the news is worth more than 65 cents a share. I really thought, with the markets up, this would be way over $4."

He said Discovery Partners' supplemental to its proxy for Infinity describes a proposed 6-to-1 reverse stock split, which he speculated "would really help. It should get the stock up to $13-plus and a lot more investors would begin looking at it."

San Diego-based Discovery shareholders are scheduled to vote on the proposed Infinity merger on Sept. 12.

PDL up 3.5% on poison pill

Meanwhile, collaborations and chatter of such deals drove a significant amount of trading activity. PDL BioPharma, Inc. has been among the ranks of a slew of biotechs speculated as a takeover target, but that buzz was seen getting more credence Monday after the company adopted a poison pill.

PDL shares (Nasdaq: PDLI) gained 66 cents on the day, or 3.54%, to $19.30.

On the news, the stock exhibited a "nice bottom formation," according to one trader.

"It looks like the PDL price has now well tested the lows," he remarked.

"So, we have proper support. The risk seems low, and that may cause new investors to buy some shares. There appears to be a potential bullish head and shoulder bottom, too. This is likely to yield a price of $21 by my guess in one or two months. And then we just have to wait and see what is next."

Fremont, Calif.-based PDL BioPharma markets three products - Cardene IV to reduce high blood pressure during or after surgery, Retavase for the improvement of ventricular function following acute myocardial infarction and IV Busulfex, a chemotherapy agent and immunosuppressant to prevent graft rejection. The company also has six product candidates in phase 2 or phase 3 clinical development.

The company adopted a shareholders rights plan, more commonly referred to as a poison pill, designed to encourage potentially hostile suitors to negotiate with the company's board.

Formerly known as Protein Design Labs, Inc., PDL BioPharma has collaboration arrangements with Roche Holdings AG and Biogen Idec, Inc.

Mylan sinks on Matrix deal

In another move southward, generic drugmaker Mylan Laboratories Inc. slipped almost 2% Monday after saying it would buy up to 71.5% of the outstanding shares of India drug ingredients maker Matrix Laboratories Ltd. for $736 million in cash.

Under terms of the deal, Pittsburgh-based Mylan will buy 51.5% of Matrix shares from certain selling shareholders for Rs. 306 rupees - a 37.8% premium to the Rs. 222 close for the stock Friday on the National Stock Exchange in Bombay. Mylan said it will also offer to buy up to another 20% of Matrix shares from remaining shareholders at the same price.

Mylan shares (NYSE: MYL) lost 32 cents, or 1.55%, to $20.28.

Matrix shares (India: MATRIXLABS) gained Rx. 55, or 0.2%, to Rs. 277.90.

"I think the time to buy [Mylan] approaches $20 today, then I look for a 4% to 5% bounce back later this week," said a buyside source in Boston.

"That's all I need for accumulating small gains."

Mylan is executing on a commitment to establish a global platform and expand its dosage forms and therapeutic categories, said Robert Coury, chief executive of Mylan, in a statement. Additionally, he said the acquisition deepens its vertical integration and enhances supply chain capabilities.

The deal, which Mylan will fund using its existing credit revolver and cash on hand, is expected to close in fourth quarter. Mylan said it should add modestly to fiscal 2008 earnings estimates and significantly to earnings after that. Mylan reiterated an adjusted per-share fiscal 2007 earnings forecast of $1.35 to $1.55 a share.

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