Teva lower; Endo, Penwest up; StemCells gains 7%; Nastech higher; Hemispherx rises 11%

By Ronda Fears

Memphis, Aug. 29 - Consolidation or contraction trends in the Big Pharma group was a dominant theme in trading activity among biotechs chatted up as takeover candidates, traders said, along with buying ahead of an anticipated upswing after Labor Day.

"Glaxo's CEO [GlaxoSmithKline plc chief executive Jean-Pierre Garnier] recently talked about the industry shrinking down from 15 top companies down to just three or four in the next 20 years," said a biotech stock trader at one of the bulge bracket firms.

"So, you have to wonder where these small biotechs will be in that mix. It seems logical that there will be some more Big Pharma investment into biotechs, but it also seems fair to say that there will be more mergers within the group, not just from without."

That said, the trader said his observation for Tuesday's session was some pretty heavy short covering in key names among the takeover chatter coupled with more buying of beaten down biotech stocks.

On takeover speculation, he specifically mentioned Noven Pharmaceuticals, Inc. (Nasdaq: NOVN), which was up $1.08, or 4.55%, to $24.83, Alexion Pharmaceuticals, Inc. (Nasdaq: ALXN), which was up $2.23, or 6.12%, to $38.68, Exelixis, Inc. (Nasdaq: EXEL), which was up 63 cents, or 7.52%, to $9.01, and Aspreva Pharmaceuticals Corp. (Nasdaq: ASPV), which was up $1.46, or 6.48%, to $24.

Among the gainers on bargain-hunting, he cited Gene Logic, Inc. (Nasdaq: GLGC), which was up 17 cents, or 10.43%, to $1.80, Curis, Inc. (Nasdaq: CRIS), which was up 11 cents, or 10.58%, to $1.15, Pozen, Inc. (Nasdaq: POZN), which was up 47 cents, or 4.45%, to $11.04 and Immunomedics, Inc. (Nasdaq: IMMU), which was up 12 cents, or 5.61%, to $2.26.

Among Big Pharmas, Schering-Plough Corp. was the day's headliner as it confirmed an agreement with the U.S. Attorney's Office in Massachusetts and the U.S. Department of Justice to settle the previously disclosed investigation involving sales, marketing and clinical trial practices and programs for $435 million. Under the agreement, unit Schering Sales Corp. will plead guilty to one count of conspiracy to make false statements to the government and pay a criminal fine of $180 million, and the Kenilworth, N.J.-based parent will pay $255 million to resolve civil aspects of the investigation.

Schering-Plough shares (NYSE: SGP) were lower briefly in the morning, but settled the session higher by 53 cents, or 2.6%, at $20.94.

Teva pained by Purdue case

Elsewhere, Teva Pharmaceutical Industries Ltd. was slightly lower after announcing a settlement of the patent dispute over the controversial painkiller OxyContin with privately held The Purdue Frederick Co., which calls for Teva to cease selling its generic oxycodone products.

"Institutions are selling like mad, but slowly everyday, so new buyers help take up the slack," said a sellside trader. "For right now, I would stay away from Teva until the selling stops."

Teva shares (Nasdaq: TEVA) slipped 12 cents on the day, or 0.35%, to $34.57.

But, the trader said there is considerable upside in the Teva story long term, noting that Teva means to launch 25 new generic drugs in 2006 representing combined brand sales of about $17 billion a year, and in 2007 and 2008 expects to launch another 70 or 80 with combined sales of about $35 billion.

Endo rebounds, Penwest higher

After the market close Monday, Purdue announced a settlement with Endo Pharmaceuticals Holdings, Inc. in another lawsuit over OxyContin under a similar agreement. The stock was rebounding on short covering, a trader said, as big players buy into the Endo story for a long-term position.

Endo shares (Nasdaq: ENDP) gained 70 cents, or 2.16%, to $33.14, after losing ground on Monday.

"It's a perfect agreement for Endo," said the sellside trader cited on Teva as well.

"The amount of money that Endo would generate from generic Oxycontin was going to be quite minimal after this year. Now, Purdue will put the drug back on the market and sell it for much more money. Thus, with Opana being launched, people can't say Oxycontin is so much cheaper. This is huge for Endo."

Last week, Endo acknowledged it will enter mediation with development partner Penwest Pharmaceuticals Co. over the painkiller Opana, which received FDA approval in June, and Danbury, Conn.-based Penwest opted not to share in launch costs of the drug.

Penwest sued Endo, saying it owed Endo between $23 million and $30 million for costs associated with obtaining FDA approval for Opana, and wants Endo to recoup the losses by adjusting royalty rates payable to Penwest. Endo argues that both companies should share equally in the profits and losses associated with the launch, and had planned to recover launch costs through an increased share of profits.

In June, Chadds Ford, Pa.-based Endo cut its adjusted earnings-per-share forecast for the year by 20 cents to a range of $1.55 to $1.60 to account for Penwest not backing the launch.

Penwest shares (Nasdaq: PPCO) on Tuesday added 15 cents, or 0.84%, to $18.08.

StemCells rises on license pact

On to other strong gains, StemCells, Inc. was sharply higher on news it has granted a license to Stem Cell Therapeutics, a Canadian biotech engaged in treating certain central nervous system disorders by stimulating endogenous neural stem cells.

After gaining in the pre-market, StemCells shares (Nasdaq: STEM) opened higher and pretty much held to the day's highs, closing the session up by 16 cents, or 7.11%, at $2.41.

"When a company sells off franchise rights, it usually is trying to raise money. StemCells knows that if they do another diluted stock share sale, they will go to the pink sheets," said a buyside market source in Atlanta.

"This company has been in trouble with cash but they are being smart.

He suggested loading up on September $2.50 calls.

"Leverage in and triple your money with the calls, which are $0.20 now," he said. "They are easily $0.60 within a couple weeks. It's a great gamble. The stem cell sector is moving up next month."

The agreement provides StemCells with access to Stem Cell Therapeutics' intellectual property portfolio for use in drug discovery, screening and testing and therapeutic use of cellular compositions. Financial terms were not disclosed but StemCells said it will pay the co up-front and license maintenance fees, as well as milestone and a "reasonable" royalty on products developed under the agreement.

Other stem cell names better

Indeed, most other stem cell biotech names were higher Tuesday, as the StemCells deal adds to previous collaborations that onlookers say legitimizes the prospect of luring bigger partners to the controversial research work.

Volume in some of the stem cell names Tuesday was impressive, one trader said, who said he is establishing positions in several of the names in the group without a favorite.

"Considering it's the week before Labor Day and the market is really slow, there was strong volume today," the trader said. "I think the recent upsurge in accumulation in the [stem cells] sector is significant. I loaded up."

In late June, Menlo Park, Calif.-based Geron Corp. and Carlsbad, Calif.-based Invitrogen Corp. announced that Invitrogen has licensed Geron's intellectual property related to the growth of human embryonic stem cells for development of research tools.

Geron shares (Nasdaq: GERN) were up 30 cents, or 4.56%, to $6.88 on Tuesday. Invitrogen shares (Nasdaq: IVGN) added 75 cents, or 1.22%, to $61.98.

Among other stem cell names higher, Aastrom Biosciences, Inc. shares (Nasdaq: ASTM) gained 5 cents, or 4.35%, to $1.20 and ViaCell, Inc. shares (Nasdaq: VIAC) rose 3 cents, or 0.74%, to $4.11.

In late July, a presidential veto of the controversial stem cell research bill nixed more government funding for embryonic stem cell research, which onlookers noted makes collaborations and other funding means a priority for this group.

Hemispherx buys technology

Another biotech with stem cell-related work in progress, Hemispherx Biopharma, Inc. shot up Tuesday after announcing it has acquired new technology to advance DNA-based vaccine production. In addition, Hemispherx is working on an avian influenza vaccine - another area that has seen a recent surge of interest because of the oncoming flu season.

Hemispherx shares (Amex: HEB) gained 24 cents on the day, or 11.16%, to $2.39.

"Short interest in this name is dying, very rapidly," said a trader.

Financial terms of the deal were not disclosed, but Philadelphia-based Hemispherx has bought the worldwide exclusive license of Vanderbilt University's technology for the use of the chemical compound DOGS, or dioctadecylamidoglycylspermine, for the delivery of therapeutic DNA to the interior of cells.

Hemispherx said the acquisition of this intellectual property enhances its position in the vaccine field and provides an enabling mechanism for genetic vaccination. The company plans to combine the technology with its experimental immunostimulatory drug Ampligen to create a new vaccine technology platform for use in humans and animals, and in its efforts to develop biodefense products.

Ampligen is in clinical trials for the treatment of myalgic encephalomyelitis/chronic fatigue syndrome and HIV, as well as to combat the H5N1 avian flu both alone and in combination with existing drugs like Tamiflu.

Nastech gains on grant news

In another flu name, Nastech Pharmaceutical Co. Inc. was awarded a development grant for RNAi Therapeutics to prevent and treat influenza for an undisclosed amount, but traders said the stock struggled to show a gain on the news.

"The view is still negative on this one for right now," said a trader.

Nastech shares (Nasdaq: NSTK) added 6 cents, or 0.4%, to close at $15.17.

"I see higher growth and revenues here, and they need it badly," said a buyside market source in Boston. "So, even though Nastech was down today, I figure the shorts will have to begin covering within the week."

Bothell, Wash.-based Nastech announced that the National Institute of Allergy and Infectious Diseases, a division of the National Institutes of Health, awarded the company a phase 1 Small Business Innovation Research grant.

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