Amgen up slightly ahead of earnings; Isis, NeoPharm, Genta up; Affymetrix off, Illumina up 29%

By Ronda Fears

Memphis, July 19 - As predicted by several market sources, biotechs took off Wednesday, and traders said they expected the ebullience to continue through the week's end. Ironically, perhaps, big biotech Amgen, Inc. was one with milder gains in advance of its earnings report Thursday.

Amgen's (Nasdaq: AMGN) gain of 38 cents, or 0.59%, to $64.56 paled against the 3% increase in the Nasdaq Biotechnology Index and many more double-digit gains seen in individual biotech stocks.

"It was a great day for biotechs and a long time coming," remarked a sellside market source, specifically mentioning Isis Pharmaceuticals, Inc., NeoPharm, Inc. and Genta, Inc. as his favorite picks in the sector as buys on recent weakness.

"The sector was oversold, and hopefully now we can move forward in a constructive manner, with facts, news, and give some of these stocks that have been slaughtered the chance they deserve."

Isis shares (Nasdaq: ISIS) added 16 cents, or 2.68%, to $6.13. NeoPharm shares (Nasdaq: NEOL) rose 29 cents, or 6.44%, to $4.79. Genta shares (Nasdaq: GNTA) were up 21 cents, or 16.28%, to $1.50.

Elsewhere, extending gains from the day before, Tercica, Inc. shares got a boost Wednesday from news that the French pharmaceutical concern Ipsen SA is buying a 25% stake in the company with the option to boost it to 40%. The two companies have also exchanged rights to sell Tercica's Increlex, a drug to treat children with growth hormone deficiency disorder, as well as develop new products.

Tercica shares (Nasdaq: TRCA) added 39 cents on the day, or 8.3%, to settle at $5.09, following an 11% jump on Tuesday. Ipsen shares (Paris: IPN) gained €0.52, or 1.65%, to €32.

Tercica is in a patent dispute with Insmed, Inc., which has Iplex to treat children with growth hormone deficiency disorder, which is scheduled to go to trial in November. Insmed was higher again Wednesday, as well, with that stock (Nasdaq: INSM) gaining 7 cents, or 6.03%, to $1.23 on top of a 9% gain the day before.

Also of note, despite a presidential veto Wednesday of the controversial stem cell research bill that would give biotechs in that area government funding, some of the top names in that group headed north with the broad sector gain. ViaCell, Inc. shares (Nasdaq: VIAC) added 6 cents, or 1.49%, to $4.10. Geron Corp. shares (Nasdaq: GERN) rose 16 cents, or 2.6%, to $6.31. And, StemCells, Inc. shares (Nasdaq: STEM) were up 3 cents, or 1.3%, to $2.34.

"Government funding wasn't a make-or-break issue for any of these" stem cell research companies, said a trader.

India's Biocon in U.S. talks

India-based biotech Biocon Ltd. shares were lower Wednesday despite an improved quarterly report and word from the company that it is in "very advanced" talks to license its insulin product in the United States with a "large" American company as well as three companies in Europe.

Biocon shares (Bombay: BIOCON) dropped Rs. 7.10, or 2.07%, to Rs. 336.70.

Biocon posted net earnings of Rs. 389.1 million, up from Rs. 387.1 million with a 21.6% increase in revenue to Rs. 2.12 billion. Chairman Kiran Mazumdar-Shaw said she expected better pricing ahead but expected spending on research would go up from the Rs. 60 million outlay in the most recent quarter.

In April, Biocon said it had invested Rs. 1 billion in a collaboration with Centre of Molecular Immunology in Cuba for a new facility in the south Indian city of Bangalore, which would make monoclonal antibodies for cancer and autoimmune diseases.

Mazumdar-Shaw said Biocon was seeing growth in new businesses like research services and sales of insulin.

In addition to the talks to expand sales of its Insugen insulin product in the United States, Biocon has inked a licensing agreement for Insugen with Bayer AG's HealthCare unit for the Chinese market and has begun phase 1 human clinical trials for its oral insulin molecule.

Affymetrix falls on price cut

In one of the few declines of the day, Affymetrix Inc. slipped following its move to reduce prices of a gene chip used to test drug candidates, which was interpreted as a means to address competition but perhaps too little too late.

Affymetrix shares (Nasdaq: AFFX) fell $1.81, or 7.75%, to $21.54.

The company said late Tuesday it is immediately cutting prices on its 500K SNP (single nucleotide polymorphisms) system to $250 and will offer the two-chip system as a single array by the end of the year.

"They have had trouble with execution," said a sellside market source. "Now, this event reeks of desperation, you know. And that sort of doesn't sit well with folks."

Analysts attribute Affymetrix's price-cutting move to growing competition.

Illumina zooms, some sell

In reaction to the Affymetrix news, shares of gene chip rival Illumina, Inc. took off sharply, but there were skeptics of the reaction who were selling into the spike.

Illumina recently launched the HumanHap550, which contains more than 550,000 single nucleotide polymorphisms on one chip, making it more powerful than Affymetrix's product, which contains 500,000. Affymetrix said it plans on releasing a system with 1 million SNP by the first quarter of 2007, with an expected price of $500, but analysts said it may be too late since Illumina has already launched its product.

Although Illumina shares were lifted on the news, one buysider said he was selling into the rally as he sees it as a short-lived situation.

"This is exhausted. Buyers now are late and will get slaughtered," the buyside trader said. "This is a great stock, but it's meeting irrational exuberance. Somewhere between here and $32 is the truth."

Illumina shares (Nasdaq: ILMN) shot up $8.24, or 29.55%, to $37.10.

With the price spike, the buysider said he anticipates a drop will be precipitated by a trip by the company to the capital markets.

"Watch for a secondary, or an outright stock offering by the company," the buysider said. "At these levels, it would be tough to resist if you were Illumina."

GTC shares drop 9.5%

On the primary front, which has slowed to a trickle in the biotech sector with the onset of summer, GTC Biotherapeutics, Inc. proposed a private placement for up to $17,535,000.

The offering includes up to 12 million units of one share and one warrant for 0.65 of a share. The unit price is $1.46125. The whole warrants are exercisable at $1.4145 each for 10 years.

GTC shares (Nasdaq: GTCB) slid 13 cents on the news, or 9.49%, to settle out at $1.24.

"The smart one bought at below a dollar and sold at $1.80 (double the money). The optimistic ones (or greedy ones) kept waiting and sold at $1.60 (making some profit)," said a buyside market source in Washington state. "The stubborn one sold at $1.50 (at the expense of those who came in late). The dumb ones kept it and saw it go to $1.30. And that's where we are."

C.E. Unterberg, Towbin, LLC; Rodman & Renshaw, LLC; and Oppenheimer & Co. Inc. are the placement agents for the offering.

Proceeds from the deal will be used for general corporate purposes.

Located in Framingham, Mass., GTC produces therapeutics proteins derived from genetically modified animals. The proteins are used to treat ailments like rheumatoid arthritis and cancer.

New River troubled by float

Rough waters were seen in another deal - New River Pharmaceuticals, Inc.'s proposed $125 million offering of seven-year convertibles, which were seen as a tough sell for hedge funds and just interesting enough for outrights.

Just ahead of pricing the deal after Wednesday's close, New River shares (Nasdaq: NRPH) were off 54 cents, or 1.93%, to $27.51.

Sources in the convertible market said there was practically no stock borrow in the name, and the only hedge funds that would be interested in the deal would be those fortunate enough to get their hands on a borrow facility the bookrunner is setting up using $40 million of repurchased stock.

"The borrow is very, very limited," a sellside convertible analyst said. "It's a reasonably attractive name if you're willing to own it outright, and it's reasonably attractive if you're a hedge fund getting your allocation from Merrill, but if you're getting it from the market and you're a hedge fund you're not getting the borrow."

The sellsider said the deal could be about 2% cheap for outrights in a tough-borrow situation, making it fairly interesting, but acknowledged that there were risks.

New River's credit profile is "not all that great, they have no sales, no earnings," the analyst said.

"I think their EBITDA was negative over the last 12 months, and I think the only cash flow that they have is I think from Shire [plc.] that has given them some money for hitting a milestone...aside from the cash infusion from Shire, it's still one of these orphan-dug companies for the most part."

A Connecticut-based analyst said New River was "not a bad little company," with a product that "everybody thinks is going to make it to market and behind that they've got something that's going to be starting phase 3 trials."

But the analyst did not think the downside protection looked great from an outright perspective, and the problem with the stock borrow cut out interest from the hedge investors.

A buyside convertible bond trader said the deal was "a nicely priced security."

"But it's going to be illiquid, probably placed in a minimal number of hands, and there is no borrow," the trader said. "But if you want exposure to the company, the bond is a very good way to do it."

Genzyme new bank revolver

A done deal, however, boosted Genzyme Corp. on Wednesday. The stock basically moved up with the sector, traders said, but it was helped along with a new $350 million five-year senior unsecured revolving credit facility.

"It was OK," said a sellside biotech stock trader. "Basically, the news about the bank revolver was so routine it didn't register, but it was a nice headline."

Proceeds will be used to finance working capital needs and general corporate purposes. The facility can be increased at any time by up to $350 million aggregate, as long as there are no defaults.

Genzyme shares (Nasdaq: GENZ) added $1.50, or 2.38%, to close at $64.44 on Wednesday.

ABN Amro Bank NV, Citizens Bank of Massachusetts and Wachovia Bank are co-documentation agents. JPMorgan Chase Bank NA was administrative agent.

The facility replaces Genzyme's previous $350 million three-year revolving credit facility agreement with Bank of America and others.

Bioenvision higher

A Genzyme partner, Bioenvision, Inc. was higher, too, as traders noted it was bouncing back with the sector after a string of new 52-week lows earlier in the week.

Bioenvision shares (Nasdaq: BIVN) gained 24 cents, or 5.25%, to end at $4.81.

More or less, buyside sources said it was a biotech story that just hasn't been fully discovered yet.

"Another name that I think is worth looking at is Bioenvision. This company has what I believe to be a very active drug in the hematological space, clofarabine. Clofarabine has already been approved in the U.S., but just for a very niche market - pediatric ALL [acute lymphocytic leukemia]. They have a partner in North America, and that is Genzyme. Genzyme has all the rights and they are the ones that are marketing the drug here in the U.S., and Bioenvision has rest-of-world rights. The company recently received European approval to market the drug in Europe, and they are going to do that by themselves," said a buyside source in New York.

"However, the approval in ALL is not the real story for the company. It's a very small market, and so they don't expect much in terms of sales. However, the drug has also shown significant activity in adult AML [acute myeloid leukemia].

"Adult AML is a much a bigger market and also underserved. And if this drug is successfully developed in adult AML, you are talking about anywhere from $200 to $250 million in our estimation of potential revenues coming to the company. So that's a company that I think investors should be keeping an eye on."

Another buysider based in Boston agreed.

"We actually love Bioenvision," he remarked, adding that it is a "very solid name. [We] have a position in it, and it's getting very cheap!"

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