Inspire trial launch brings buyers; Avigen players hopeful; Applera units mixed; LifeCell lifted 15%

By Ronda Fears

Memphis, April 26 - Biotech stock trading hit a bit of a mid-week lull as earnings season reached a pinnacle as players digested a roster of mixed results. While the major biotech indexes were oozing red ink, traders said the sector still looks inviting.

"Biotech stocks are in good shape technically," a sellside trader commented. "In fact, the fundamentals couldn't be better. Unlike tech and manufacturing, where competition from China and India is pushing margins down, biotechs remain a U.S./developed world monopoly."

Discovery Laboratories, Inc. reversed previous losses from the week with a more than 17% gain Wednesday after yet another setback in its efforts to get the respiratory drug Surfaxin to market. But traders said selling still dominated in the name.

"Just remember, the fat cats are still selling [Discovery Labs] at any price," one trader remarked.

Discovery Labs shares (Nasdaq: DSCO) added 38 cents on the day, or 17.27%, to settle at $2.58, which followed a more than 50% dive on the news Tuesday.

DOV Pharmaceuticals, Inc., however, wasn't as fortunate as its stock continued to slide, even after losing nearly half its value Tuesday on a failed phase 3 trial for its lead drug candidate, Bicifadine, for lower back pain. The DOV Pharma shares (Nasdaq: DOVP) dropped another 36 cents, or 4.24%, to close at $8.14.

Elsewhere in secondary action, traders said many names that were higher for most of the day turned south abruptly in the last quarter-hour of the session.

Inspire ends off 1.5%

Inspire Pharmaceuticals, Inc. announced Wednesday the start of a phase 2 clinical trial for its drug candidate, INS50589, or Antiplatelet, in patients undergoing coronary artery bypass graft surgery utilizing a cardiopulmonary bypass pump.

The news initially boosted the stock, but Inspire shares (Nasdaq: ISPH) closed the day off by 8 cents, or 1.54%, at $5.10. Still, many players were positive on the story.

"In a year, you may see this stock double in price," said a sellside market source. "Why? Basic fundamentals are good. They have a lot of cash per share. Insider buying is another good sign. Insiders know their company better than anyone. If they buy the stock at market price and with their own money, it tells you something."

Durham, N.C.-based Inspire has come under pressure in recent months but has been bouncing around generally in line with the biotech sector, the sellsider said.

Inspire is involved in the field of P2 receptors, which are principal drug targets in various therapeutic areas such as ophthalmology, respiratory disease and cardiovascular disease. It co-promotes Elestat for the prevention of ocular itching associated with allergic conjunctivitis and Restasis for the treatment of dry eye disease with Allergan, Inc.

Avigen anticipations high

Avigen, Inc., among some 100-plus other companies, is on deck to report first-quarter results Thursday and anticipations were high, although the stock was a little soft ahead of the news.

"We still love Avigen. It's been going well," said a buyside source in Boston. "The Avigen [first-quarter] call should simply provide more information into [their] transition strategy and their in-licenses. I'm looking forward to it."

Avigen shares (Nasdaq: AVGN) dropped 15 cents on the day, or 2.25%, to close at $6.51.

A trader on the sellside was looking for pleasing news but said the stock will probably be range bound until some trial news pops up.

"This thing will bounce around a lot until we see some clinical data," the trader said. "Stocks like Avigen are out front in the biotech group. Avigen is not a major biotech but should do well in the long term, if the management executes well."

The company had somewhat of a setback a month ago when it announced that Dawn McGuire, its chief medical officer, would step down April 12 for health reasons. Drew Jones, senior director of clinical affairs, and Michael Hensley, head of regulatory affairs, have taken over McGuire's duties.

Another sellsider added that the company has an estimated four-plus years of cash and a $120 million market cap with an anti-spasticity drug from Europe that has been studied in 1 million patients and is thought to be better than existing treatments due to its non-sedative qualities. He noted the company also has a pain drug program they haven't really started talking about yet.

Ken Chanine, chief executive of Avigen, has said the company aims to move two drugs that McGuire oversaw into clinical trials later this year.

Alameda, Calif.-based Avigen focuses on neurological disorders. Its lead drug candidate, AV650, is in development under license with Sanochemia Pharmazeutika AG to treat muscular spasm and spasticity. Other products include AV411 for neuropathic pain and other neurological disorders, and AV513 for bleeding disorders such as hemophilia.

Applera biosystems unit up

Biotech services names continued to come under some pressure Wednesday in the wake of the Serologicals Corp. $1.4 billion buyout news from Millipore Corp. and Applera Corp.'s biosystems unit was among them for most of the session but managed to close the day slightly higher.

Applera Corp.-Applied Biosystems Group shares (NYSE: ABI) added a penny to settle at $27.13.

The Foster City, Calif., unit develops instrument-based systems and services to support applications in genomics research, such as sequencing, genotyping, and gene expression studies.

Biotech services names were weaker Tuesday on the Serologicals news, as many saw the price tag, even at a 35% premium, rather tight.

Traders noted, too, however, that Applera is scheduled to report first-quarter results Thursday.

Serologicals and Millipore also were pulling back Wednesday from big gains on the merger news, as several sellside analysts expressed doubt that the $31.55-per-share buyout was a smart move on Millipore's part. Serologicals shares (Nasdaq: SERO) slipped 4 cents to $31.11. Millipore shares (NYSE: MIL) fell $2.08, or 2.765, to $73.17.

Applera genomics unit off

Applera's genomics unit went south, though, as players took profits late in the day. A sellside trader, however, said he is anticipating some positive news from the company later this week.

The trader said he is anticipating news on the company's genetic test that is purported to help predict which patients with hepatitis C will eventually suffer liver scarring and so are in most need of treatment.

The Norwalk, Conn., unit is focused on cancer, autoimmune and inflammatory diseases.

Applera Corp.-Celera Genomics Group shares (NYSE: CRA) lost 17 cents, or 1.5%, to close at $11.20.

The test for hepatitis C, which looks at variations in seven genes, represents another step toward personalized medicine - a growing area of focus among biotechs. Celera is scheduled to present data on its test Friday in Vienna at the annual meeting of the European Association for the Study of the Liver.

Kathy Ordonez, president of Celera, said the company hopes to license the test to a laboratory that could offer it as early as year-end. Tests performed by a single lab do not require approval from the FDA but she said the company could seek FDA approval for more widespread use of it. That would take more time and test data, however.

Celera has strategic collaborations with Abbott Laboratories for cancer, General Electric Co. for products in personalized medicines and with Seattle Genetics, Inc. for antibody-based therapies for cancer.

LifeCell up on short covering

LifeCell Corp. took off on first-quarter results that beat Wall Street estimates and a bump to its 2006 outlook, which kicked in short covering that pushed the stock up by nearly 15% by day's end.

"This is a great sign, but it will need some major mojo to keep moving," said a sellside trader. "I took some profits on options I bought last week. I do think they are headed higher near term, but I know how LifeCell can be quite volatile in both directions."

He said short covering accounted for a great portion of the stock's gain on the day, noting the float was around 45 million shares with about 63% institutional ownership.

LifeCell shares (Nasdaq: LIFC) added $3.41 on the day, or 14.62%, to end at $26.73 with a whopping 5 million shares traded, versus the norm of 713,143 shares.

"The shorts will add more; this is not your typical situation," the trader said. "LifeCell is a great play; nevertheless, it's not a straight to the moon shot. Shorts will exit, at some point, but not at a loss."

The Branchburg, N.J.-based stem cell research biotech posted first-quarter net income of $4.1 million, or 12 cents per diluted share, nearly double year-ago net income of $2.1 million, or 7 cents per diluted share, while revenue grew to $30.5 million from $19.7 million.

Life Cell also boosted its 2006 guidance, saying it now anticipates revenues in a range of $130 million to $138 million, compared to the previous range of $124 million to $130 million. Diluted net income per share is expected to be in the range of 50 cents to 56 cents, up from its earlier forecast of 42 cents to 46 cents.

Geron up 1.5% on patent

Another stem cell research name, Geron Corp., also was higher Wednesday as it announced a patent for the production of insulin secreting cells from human embryonic stem cells, or hESCs, used to treat diabetes.

"This stock looks very promising," said a buyside market source in Seattle.

Geron shares (Nasdaq: GERN) rose 11 cents, or 1.48%, to $7.54.

The company said the new patent covers methods developed by its scientists working toward the scalable production of pancreatic islet cells from hESCs for use in new cell-based treatments for diabetes.

"Geron, because they own these exclusive rights, will benefit no matter who develops it," the buysider said. "It's big."

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