DOV seesaws on CEO exit, closes higher; Neurocrine slides further; Insmed drops 8%; Tercica off 1%

By Ronda Fears

Memphis, July 5 - A dud - that was the summation of the market from biotech players Wednesday as they returned to work from the Independence Day break. One trader referred to the down market as an early onset of the summer blahs, remarking that even news with a positive angle failed to stimulate buyers.

DOV Pharmaceuticals, Inc. was particularly a disappointment as the stock gyrated on news that its chief executive had resigned in the wake of setbacks with Food and Drug Administration approval for the sleeping pill indiplon it has licensed to Neurocrine Biosciences, Inc. and its own bicifadine for chronic lower back pain. Neurocrine was dealt an extra blow a couple of weeks ago when Pfizer, Inc. pulled out of the marketing deal for indiplon.

"It [DOV Pharma] is about to take the big sleep if you ask me," one sellside market source said. "There was some pretty big swings in the stock today, but look at the volume; it stinks."

DOV Pharma shares (Nasdaq: DOVP) traded in a band of $1.91 to $2.20 - where it closed - with just 623,976 shares moved versus the norm of 1.14 million shares. The stock marked a gain of 19 cents on the day, or 9.45%.

On the DOV Pharma news, traders said there was elevated chatter that a buyout offer was imminent for Neurocrine, which licensed indiplon from DOV Pharma, but whether there was any real cause for such speculation was up in the air.

"We will wake up one day and first thing in the morning before the market opens there will be a $20-$30 buyout offer on the table by J&J [Johnson & Johnson], or another Big Pharma. It could be any day, I think," said one sellside trader.

Another pshawed the buzz as "bunk," pointing to the drop in Neurocrine shares on Wednesday as well. Neurocrine shares (Nasdaq: NBIX) lost 37 cents on the day, or 3.42%, to settle at $10.45. It too saw light volume of 1.5 million shares versus the norm of 3.2 million shares.

In general, traders said there was a lack of any buying interest in biotech stocks.

"Maybe it's just summer," one trader said. "All I know is that it was a downer to see everything slipping away after the holiday. I thought we would get a bounce, but it was just a dud. The good news on that is that flow was pretty light."

Some of the more dramatic drops in the sector, without any news to spur the declines, were Anadys Pharmaceuticals, Inc., Keryx Biopharmaceuticals, Inc. and Momenta Pharmaceuticals, Inc.

"Anadys got killed and for no reason really," the trader said. Anadys shares (Nasdaq: ANDS) ended off by 11 cents, or 3.33%, to $3.19.

As for Momenta, he commented that the patent dispute between Insmed, Inc. and Tercica, Inc. that was in the news Wednesday may have put pressure on Momenta because of its patent dispute with Sanofi-Aventis SA over a generic version of the blood-thinner Lovenox. Momenta shares (Nasdaq: MNTA) dropped 50 cents Wednesday, or 3.82%, to $12.60.

Keryx, he said, may have dropped on profit taking after the company reported positive trial results last week for its new drug Zerenex for kidney disease. Keryx shares (Nasdaq: KERX) were off 66 cents, or 4.45%, to $14.18.

DOV ends with 9.5% gain

There was a big swing in DOV Pharmaceutical shares Wednesday on news that Leslie Hudson has resigned from the chief executive officer and president positions as well as the board, but players were pleased that the stock ended in the green. It was touch and go, however.

"Considering the close we had [Monday], and the after market activity I would think there would be more folks this morning," a sellside trader said mid-morning Wednesday, noting there was $1 million of shares bought after-hours on Monday. But, he added, "As we form higher lows, this may be the last chance to get DOV below $2."

Indeed, after a series of trades that moved the stock as low as 2.5% early on, to a more than 8% gain in early afternoon, the stock settled the day strong but on light volume.

"There was no lack of conviction in the trades, though, you have to give them that," the trader said.

"One guy I talk to said DOV is headed to bankruptcy. He thinks the cash burn is too risky. And, he thinks that the management shake-up is a clear signal that they have plans to sell the company immediately."

But, he added, "On the other side of that coin, someone else said it's no wonder the CEO got the boot, because the company has something like $102.2 million in assets with a market cap of $51.2 million. On those figures alone, he thinks DOV is a screaming bargain."

The company named Barbara Duncan, its chief financial officer, to the president's seat and Arnold Lippa, the board chairman, to executive chairman of the board. Also, the company named chief scientific officer Phil Skolnick as executive vice president.

DOV's news comes after the stock has lost some 80% since late April following the setback with indiplon. The company said the reorganization is designed to maximize the value of its existing drug pipeline and to explore and pursue the most attractive financing opportunities. In April, DOV said its experimental drug bicifadine in patients with chronic low back pain had failed a phase 3 trial. Then the indiplon news served another blow.

Insmed eases off day's low

Insmed, Inc. got a wild ride Wednesday, too, plunging nearly 15% by noon before recovering to a decline of 8% in reaction to a press release from Tercica, Inc. that at first glance was interpreted to declare it had won the patent dispute over its insulin-like growth factor-1, or IGF-1, to treat children with growth hormone deficiency.

Insmed has developed Iplex and Tercica has developed Increlex to from the IGF-1 process.

Brisbane, Calif.-based Tercica alleges that Insmed has infringed on three of its patents - the IGF-1 production process patent, the method of use patent and the BP-3 production process patent it uses to make Increlex. Tercica said the court granted its motion for partial summary judgment and had ruled that Insmed's process for making Iplex literally infringes three claims of the production process patent.

Separately, Glen Allen, Va.-based Insmed clarified the news, saying that the rulings - on issues of claim construction and on motions by both sides for partial summary judgment - do not fully resolve all of the pending issues regarding any of the three patents.

"The remaining issues will be resolved at trial," which is scheduled for Nov. 6, Insmed said in a statement, adding, "The decision does not have any impact on Insmed's ability to continue to sell Iplex."

Insmed shares (Nasdaq: INSM) ended Wednesday with a decline of 13 cents, or 8.44%, at $1.41, after dropping as low as $1.16 during the session.

"The initial sell-off was due to the false press release from Tercica, or at the least it was very confusing," said a buyside source in Boston. "Tercica has not won anything. The judge has only ruled that the case has enough merit to go forward only. We know the patents are valid, but we don't know whether Insmed infringes."

In March, Insmed raised $40 million in gross proceeds from a follow-on offering of 20 million shares at $2.00 each with proceeds earmarked to fund the commercial launch of Iplex. The company also is pursing marketing authorization for Iplex in Europe and on Wednesday separately said that it has been granted orphan-drug status in Europe for Iplex.

Tercica spikes 5.5% then falls

The confusion sent Tercica on a roller coaster ride, as well, moving it first higher by as much as 5.5% in early trade to a drop of 3% by noon before recovering some of the loss to end off by a little more than 1%.

"Court rules Insmed infringes Tercica IGF-1 process patent," was the headline on Tercica's press release that started the ordeal, which one buyside trader referred to as "BS."

"Today's press release does not materially change the legal proceedings, not at all," the trader said. "November is the trial timeframe. But, this could mean that a settlement is expected between both companies. There could be some positioning taking place between the parties. Of course, a settlement in these types of disputes is not uncommon at all."

Tercica received FDA approval for Increlex in September. Insmed got FDA approval for Iplex in December.

The trader said he is basically negative on Tercica, though, and was shorting the stock.

"This company has a significant cash burn, and I expect more dilution - a secondary - by the end of the year," he said. "It has an inferior product to Insmed and a very limited market for expansion. Tercica is competing with Insmed for possibly 6,000 total patients in the U.S.; that's all."

In January, Tercica raised $32 million in gross proceeds from a follow-on offering of 5 million shares at $6.40 per share with proceeds earmarked to launch Increlex, which it has licensed to Genentech, Inc.

Northfield Labs rises 6%

To the plus side Wednesday there were few biotechs to note, but Northfield Laboratories, Inc., which is working on a blood substitute, got a big spike that traders attributed largely to enthusiasm from recent options activity.

Northfield Labs shares (Nasdaq: NFLD) gained 61 cents on the day, or 6.09%, to close at $10.62. Volume was 551,034 shares versus the norm of 227,653 shares.

"There was a nice move today on increasing volume. This really confirms the accumulation we've seen for past few weeks," said a buyside source.

"Looks like we have a chance at crossing $11 just on anticipation alone. That will be very good because where we go in the short-term is somewhat dependent on where we came from. Once the announcement for trial enrollment completion is made, I expect we will gain another 20% or so. So starting at $9 will give us a boost to about $10.80, but starting at $11 will give us a boost to about $13.20, which is more like it. Actually, if we cross $13 on the announcement, I would not be surprised to see us head to $15 as option players alone could take us there."

Northfield Labs said in mid-June that it has nearly completed enrolling patients in a pivotal phase 3 trauma study for its PolyHeme, a blood substitute that carries oxygen and resuscitative fluid to treat urgent, large-volume blood loss.

"Our analyst, and others, have noted that investors were bidding higher the Northfield options that expire at the end of the year, which is unusual in that people are pricing in an event that far out," the buysider said. "This options activity suggests people are expecting something of the magnitude to push the stock either 30% higher or 30% lower by the end of the year."

On June 12, Northfield Labs announced its purchase of the building it currently occupies as lessee in Mt. Prospect, Ill., a 106,000-square-foot property, for $6.7 million, to manufacture PolyHeme.

"Northfield will pop up on a lot of screens today just by the major move up when most of the market is spinning downward. Folks will want to know why," the buysider continued. "Who knows, maybe some of them will take a more in depth look at Northfield and like what they see.

"I think we will see a lot of churning volume-wise in the $10.50 to $11 range, though. Many folks bought into the fake-out rally in early April that took the stock up to $11. They have been underwater until now, perhaps looking for a break-even exit point. Their psychology or need for money will prompt a sell at this level. This will delay a rise until the action at $11 is cleared. Once those players have exited, the price is free to move higher to the next level of previous buying interest."

Futura partners with Glaxo

British biotech and medical device maker Futura Medical plc plans to raise up to £2.5 million, after costs, via the follow-on sale of 3.4 million ordinary shares at 78p each. With proceeds from the intended exercise of stock options from directors and staff amounting to £831,250, the company said its total net proceeds will be around £3.35 million.

Canaccord Adams Ltd. and Collins Stewart Ltd. are managing the offerings, which were announced Tuesday.

Proceeds are earmarked for the clinical development program of MED2002, which was the subject of a deal signed with GlaxoSmithKline plc as a partner to market the drug over the counter. MED2002 is a topical, non-prescription treatment for men with erectile dysfunction.

Also on Tuesday, Futura signed the long-awaited agreement with Glaxo to develop MED2002, which is billed as the world's first over-the-counter remedy for men with erectile dysfunction, as an alternative to prescription pills such as Pfizer's Viagra.

Under the terms of the deal, Glaxo will pay 65% of the clinical development costs and Futura 35%. The cost of the entire clinical program is expected to be about £3.65 million.

Futura shares (London: FUM), which had risen recently on hopes of an imminent deal, ended Tuesday lower by 3.8% at 82.25p. On Wednesday's news, the stock slipped 4p, or 4.88%, to 78p where the new stock offering priced.

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