Discovery Labs spikes on buyout buzz; Cell Genesys loses 5% on bought deal; Oscient buffeted

By Ronda Fears

Memphis, Sept. 8 - Ahead of Merger Monday and amid "very loud" noise of imminent buyout news, Discovery Laboratories, Inc. shot up 8% on the day Friday and another 6% in after-hours trade. A sellside trader said there was a "big European buyer for the stock," noting volume was light in the name.

"There are rumors about partnership with a company which is a division of Philip Morris USA," the trader said.

"I do not really know the genesis of that particular bit of noise, but it's very loud and getting louder as the day goes on. There was a big European buyer for the stock, but I am not sure what the implication of that is, either.

"There are a lot of shorts who want to shake any weak hands out; we know that, especially those who do not know what they have. This is no Genta waiting for trial and safety results. Suitors are also keenly aware of this, as well."

In late June, Discovery Labs hired Jefferies & Co. to explore strategic alternatives. The Warrington, Pa., biotech has lost in the neighborhood of 80% of its value since April 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. The company is slated to meet with the FDA about Surfaxin in fourth quarter.

Discovery Labs shares (Nasdaq: DSCO) added 12 cents, or 8%, to close the regular session at $1.62 with 312,612 shares traded versus the norm of 834,997 shares, and after the close gained another 10 cents, or 6.17%, to $1.72.

Genta ends week lower still

Genta, Inc.'s demise earlier in the week with getting approval for its Genasense for patients with relapsed or refractory chronic lymphocytic leukemia served to focus those exiting the story on RNA interference names, one sellside market source said.

On Friday, Genta shares (Nasdaq: GNTA) ended the week with another loss, of 2 cents, or 3.88%, to 51 cents, having dropped over two-thirds of its value since Monday.

The technology used by Genta, antisense-based therapies, has struggled because of difficulties with systematic delivery in the body, the sellsider said. This highlighted a similar technology, RNA interference with siRNAs, for broad application ranging from cancer to influenza.

Top picks among the later, he continued, are Sirna Therapeutics, Inc. (Nasdaq: RNAI), which has partnered with GlaxoSmithKline plc, and Alnylam Pharmaceuticals, Inc. (Nasdaq: ALNY), with collaborative agreements with Merck & Co., Inc. and Novartis AG.

Sirna shares (Nasdaq: RNAI) on Friday added 13 cents, or 2.4%, to $5.55.

Alnylam shares (Nasdaq: ALNY) gained 15 cents, or 1.08%, to $14.02. Alnylam also is working on a bird flu vaccine.

Rosetta Genomics of interest

Beyond Sirna and Alnylam, he said there is interest in new names to the stock game, namely Rosetta Genomics Ltd., an Israel-based biotech going public in the United States. The company develops microRNA-based therapeutic and diagnostic agents with a focus on cancer and infectious diseases.

Rosetta Genomics is a new entry to the initial public offering calendar, filing its offering last week. Pre-IPO founder Isaac Bentwich is the largest shareholder with 21% of the equity followed by Kadima Hi-Tech Ltd. at 17%, Harmony 2000 at 6.1% and Instanz Nominees Pty. Ltd. with 4.6%.

"They are an RNAi company to be taken seriously," the sellside trader said.

Rosetta Genomics is scheduled to price the week of Oct. 2.

Elsewhere on the primary market front, price talk has emerged on the upcoming IPOs from ImaRx Therapeutics, Inc. - at $10 to $12 a share - and Light Sciences Oncology, Inc. - at $14 to $16 a share.

More enthusiasm, however, came from the Warner Chilcott Ltd. IPO getting scheduled for the week after next, along with Home Diagnostics, Inc.

"Warner Chilcott is one everyone is watching, with considerable excitement," said a fund manager focused on IPOs.

Cell deal deeply discounted

In a deeply discounted bought deal, Cell Genesys, Inc. raised $25.3 million from a follow-on offering of 5.75 million shares priced at $4.40 each, discounted from Thursday's close of $5.03, with bookrunner Credit Suisse buying the stock to market at a later date.

A fund-raising effort came to no surprise to many Cell Genesys holders, but the significant discount was a disappointment along with no show of support from company management.

"I recall that on June 8, 2005, a handful of Cell Genesys' senior officers simultaneously made direct, open-market purchases of stock as a signal that they still had confidence in the company after the official announcement that development of autologous vaccines was being discontinued," said a biotech fund manager in Boston.

"Their share purchases were not very large, but they served an important symbolic purpose. It would be nice to see a similar signal of confidence by management to shareholders after the dilution. But we did not get to see that."

Cell Genesys shares (Nasdaq: CEGE) closed Friday off a quarter, or 4.97%, at $4.78 - about where the stock fell to in after-hours activity on the deal news Thursday.

The South San Francisco, Calif., biotech's focus is on gene modification technologies for cancer. Its GVAX cancer program has two phase 3 clinical trials in prostate cancer and phase 2 trials in pancreatic cancer and leukemia under way. In its oncolytic virus program, with an alliance with Novartis AG, a multiple dose phase 1 clinical trial of CG0070 in recurrent bladder cancer has begun.

Oscient down, Replidyne up

Oscient Pharmaceuticals, Inc. was buffeted severely Friday in what traders described as posturing ahead of a FDA vote on whether to expand the label for its antibiotic Factive to include sinusitis along with bronchitis. The event also stirred some buying in Replidyne, Inc., which has a competing sinus remedy coming up for FDA consideration in October.

On Tuesday, the FDA is scheduled to vote on Oscient's Factive bid.

On Monday, onlookers also are expecting some indication from FDA staff comments about the fate of Replidyne's Faropenem, which is due FDA consideration on Oct. 20.

"We are seeing heavy posturing in Oscient, traders trying to cover all the bases because the FDA is such a wild card these days," a sellside trader said.

Oscient shares (Nasdaq: OSCI) lost 9 cents, or 7.63%, to end at $1.09 for the regular session but in after-hours traded added back 10 cents, or 9.17%, to $1.19.

Replidyne shares (Nasdaq: RDYN) gained 61 cents on the day, or 6.46%, to close Friday at $10.05.

NitroMed drops, recovers

In another topsy-turvy ride for a beaten down biotech stock, NitroMed, Inc. also was seen recovering the day's losses in after-hours activity.

In a presentation Friday at the Thomas Weisel Partners Healthcare Conference, NitroMed chief executive Argeris "Jerry" Karabelas said a pilot study is anticipated to get launched later this year for BiDil XR. BiDil XR is the next generation - an extended release formula - of its BiDil heart medication targeted for black patients.

NitroMed shares (Nasdaq: NTMD) lost 12 cents, or 4.44%, to close Friday at $2.58, then after the close gained back the 12 cents to $2.70, where it closed the day before.

The stock is still hovering just above the 52-week low of $2.44 after taking blow after blow throughout the year on disappointing revenues from BiDil since it was approved and launched in July 2005.

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