Alnylam up 10% on Novartis pact; OSI off; CuraGen clipped; Inspire comes in; Ista drops despite data

By Ronda Fears

Memphis, Feb. 21 - Biotechs on whole followed the broader market southward Tuesday as concerns about further interest rate hikes spooked traders. Nonetheless, the money flow into the biotech space was looking good from behind the analysts' desks anyway.

"People I have spoken to say there is no shortage of funds for biotech financing. A lot of the new opportunities are in the private companies," said one biotech analyst. When asked if there was any particular focus, he said it seemed geographically driven with a penchant toward "Canadian- and Asian-based biotechs."

On trading desks, however, dispositions were less enthusiastic, but traders noted thin activity except among the gainers seen Tuesday, which were few and far between.

"The market mood is obviously not helping in bringing in the buyers," said a trader in New York. "But I think that all the option exercise holders from last Friday that had to sell have done so." Early in the session, the trader said he was hoping for "a chance to close even or slightly less." But as the day wore on, he said, "everything just kept going south, with [just a] few exceptions."

So-called positive news even failed to lift several biotechs, he pointed out. He mentioned OSI Pharmaceuticals, Inc., which lost ground even as it announced that it has begun a phase 2a clinical trial for its glycogen phosphorylase inhibitor to treat type 2 diabetes. OSI shares (Nasdaq: OSIP) dropped 67 cents, or 2.19%, to $29.88, but the trader saw that as a buying opportunity.

"There has been so much focus on a Big Pharma acquisition [of OSI] that brought in fly-by-night buyers, and now with that dissipating they have lost interest," the trader said. "The way I see it, OSI is on the way to profitability on its own, [with] no need to sell out. If you believe in Tarceva [its cancer drug in development with Genentech, Inc.] and Macugen [its age-related macular degeneration drug acquired with Eyetech Pharmaceuticals, Inc. in 2005], invest in OSI and watch it grow and profit. Give up on the quick fix dream of a buyout."

Alnylam, Novartis focus on flu

Alnylam Pharmaceuticals, Inc. got a big shot in the arm Tuesday from its collaboration with Novartis AG to develop RNAi therapeutics for pandemic flu, though some players were grumbling that no dollar figures were disclosed.

"The value in Alnylam is in its partnerships and its acclaimed potential. Trying to price Alnylam fairly is a nightmarish impossibility right now, and not having any figures related to what they might be bringing in from this doesn't help," said a buyside source. "So, you do what you can in the way of research and then sort of follow the pack."

Alnylam said the collaboration is in addition to the collaboration formed with Novartis in September and significantly reinforces the development program for pandemic flu it announced in December. In the newly formed collaboration, Alnylam and Novartis will advance RNAi, or RNA interference, therapeutics for pandemic flu to initial clinical testing and, if successful, regulatory approval.

Financial terms were not disclosed, but Alnylam's chief executive said on a conference call that the pact includes "significant" Novartis funding and a profit-sharing structure. That, along with other funding recently pocketed by Alnylam, produced a sharp rise in the stock.

Alnylam shares (Nasdaq: ALNY) added $1.42, or 10.11%, to $15.46. At the end of January, the company raised $66.5 million in gross proceeds from a follow-on sale of 5.1 million shares at $13 each.

"A stock like this is priced per its future value potential. Not to mention, when dealing with a stock like this, you need to evaluate it on the value of its current licensing revenue and funding," a sellside source said. "Of course, there is a lot of estimating involved; hence, the volatility. It is really quite that simple. If you can tolerate the volatility and understand and believe in the technology, you will probably make a lot of money on this. This company is unique, given it is one of a few companies leveraged in RNAi therapeutics and has arguably the best intellectual property estate of them all."

CuraGen off 2.5% on trial data

CuraGen announced what it couched as positive phase 2 results on Velafermin for the prevention of oral mucositis, mouth sores caused by cancer treatments, but the stock sank in what one trader referred to as a misinterpretation of the data by players as it related to trial results on the drug in December.

"The clinical trial data is good, but I wasn't going to lose money over it by buying on the downswing," said one buysider. "I'll give it some more time to start back up before I'm a buyer again."

CuraGen released additional results from a phase 2 randomized, placebo-controlled clinical trial evaluating a single dose of Velafermin for the prevention of oral mucositis in patients receiving high-dose chemotherapy, with or without radiation, prior to autologous bone marrow transplantation. The phase 2 safety and efficacy trial was designed to evaluate dosage, and the company said the lowest dose evaluated significantly reduced the incidence and duration of severe oral mucositis.

"Great results," the buysider continued. "The results indicate that administering three times or seven times the lowest dose is ineffective. In fact, the optimum dose is likely less than the lowest tested dose. With a reasonably fixed amount per effective dose, this will even further improve the profitability of Velafermin. Velafermin worked so well that its efficacy (50% reduction in oral mucositis with the lowest dose) flat out beat all expectations (30% reduction in oral mucositis with highest dose). Looks like Curagen is building a strong product pipeline."

A sellside trader said the stock seemed to fall victim of confusion over the data.

CuraGen shares (Nasdaq: CRGN) dropped 13 cents, or 2.55%, to $4.96.

"They had trial data in December that seemed to say the same thing, but it didn't," the sellsider said. "Then, some just saw the test was to see if higher doses work better and, in that regard, the test was a failure."

Inspire steady on licensing pact

Inspire Pharmaceuticals, Inc. announced development and license agreement with Boehringer Ingelheim International GmbH for its epinastine, a solution to prevent itching of the eyes, but the news failed to provoke a bounce in the stock. Instead, Inspire shares were slightly lower.

A sellside trader said the news was "just not enough to reverse the damage already done." He was referring to news from Durham, N.C.-based Inspire a month ago that it had discontinued two phase 2 pilot clinical trials of denufosol tetrasodium intravitreal injection in patients with macular edema with no plans to conduct any further studies of denufosol for the treatment of retinal disease. The stock dropped on that news, ultimately hitting a new 52-week low on Feb. 10 of $4.52.

Inspire shares (Nasdaq: ISPH) on Tuesday closed off a penny, or 0.22%, at $4.62.

On Tuesday, Inspire announced it has entered into a development and license agreement with Boehringer Ingelheim. Inspire will acquire certain exclusive rights to develop and market an intranasal dosage form of epinastine in the United States and Canada for the treatment or prevention of rhinitis. Inspire is paying Boehringer Ingelheim an upfront license fee, will fund all development activities and pay single digit royalties to Boehringer Ingelheim on net sales of the product, if approved, in the United States and/or Canada.

Inspire will not owe any additional milestone payments under the agreement. If Boehringer Ingelheim commercializes Inspire's intranasal epinastine product outside of the United States and Canada, it will pay royalties to Inspire on net sales of this product.

Ista drops 3.5% despite data

Ista Pharmaceuticals, Inc. announced positive preliminary results from a phase 2b trial of ecabet sodium for the treatment of dry eye syndrome, and it, too, had trouble generating much enthusiasm among buyers except early on in the session.

"Early buying is good," a sellside trader said. But the skids were put on the gains directly, in part due to analysts' reactions, he said.

Jefferies & Co. biotech analyst David Windley urged a hold on the stock, acknowledging that the company has reported positive data on two pipeline products in the past three weeks but added that Ista's "near-term outlook remains tied to its three marketed products [and] of these, only Xibrom has managed to sustain sequential growth."

Ista shares (Nasdaq: ISTA) ended lower by 24 cents, or 3.5%, at $6.61.

"The problem with Ista is that if the company and its products were to completely disappear tomorrow, the world would not be so bad off," the sellside trader said. "Ista asks the market to pay more for drugs that do nothing worthwhile different than existing alternatives. It is really that simple and that's why this company is and will continue failing."

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