Genitope falls 12%; Micromet off; Oscient up; DepoMed dives; Atricure off; Discovery Labs rises 10%

By Ronda Fears

Memphis, July 24 - As second-quarter reporting peaks this week, biotech stocks were decidedly stronger, and traders said solid showings from Merck & Co. and Schering-Plough Corp. helped boost the sector, but the smallest biotechs continued to suffer at the hands of sellers.

"The big boon to biotechs from the Big Pharma earnings is the possibility of deals and/or acquisitions," observed a sellside biotech stock trader. "As a group, biotechs were firmly higher today, but it was a tale of two cities, [as] the micro-cap names were off pretty big."

The day's decliners in the biotech group largely consisted of the tiny names that have had trouble with Food and Drug Administration approvals or are in dutch with the Securities and Exchange Commission because of late financials and/or stock price deficiencies, traders said. Among that category, one of the day's noteworthy losers was Genitope Corp.

"Risk tolerance still hasn't made a comeback, you know," the trader remarked. "In the riskiest names we were still seeing selling."

Genitope had a bounce a couple of weeks ago ahead of anticipated news this week on a second interim analysis of its pivotal phase 3 trial for MyVax, a personal cancer vaccine it has in development, that has seen setbacks. But skepticism prevailed among players in the name Monday. Genitope shares (Nasdaq: GTOP) dropped 82 cents, or 12.04%, to $5.99.

"My gut says we will be waiting another year for any better light on the Genitope story," the trader added. "That will mean a temporary drop in price, but a chance to accumulate."

Meanwhile, there were signs of life on the primary front.

Osiris Therapeutics Inc. was said to be readying its initial public offering of 3.5 million common shares, which are talked to price in a range of $11 to $13 per share, for pricing this week.

The Baltimore-based biotech is focused on medical conditions in the inflammatory, orthopedic and cardiovascular areas as well as adult stem cell therapy. Proceeds are earmarked to fund business growth, including clinical trials and preclinical research and development, repay a $20.6 million promissory note and general corporate purposes.

Conor plans follow-on

In the medical device area, Conor Medsystems, Inc. said after the close that it plans to tap the capital markets with a follow-on offering of 3 million shares via joint bookrunners Citigroup Global Markets Inc. and Morgan Stanley & Co. Inc.

Conor shares (Nasdaq: CONR) closed off by 83 cents, or 3.28%, to $24.47 but in after-hours activity added back 51 cents, or 2.08%, to $24.98 as the Menlo Park, Calif., maker of stents also Monday after the close reported that its second-quarter net loss narrowed while revenue soared.

For second quarter, the company posted a net loss of $11.6 million, or 34 cents a share, compared to a net loss of $11.8 million, or 36 cents a share, for second-quarter 2005. Revenues from product sales were $11.3 million for the quarter, up from $288,000 a year before.

Micromet raises $8 million

In another deal, Micromet, Inc. has tapped funds managed by NGN Capital LLC for an $8 million private placement of 2.22 million shares at $3.60 apiece - a 7.3% discount to Friday's close of $3.8816. The investors will also receive warrants for 555,556 shares with a $5 strike price, and Peter Johann, a managing general partner with NGN, will join Micromet's board of directors.

In reaction to the news Monday, Micromet shares (Nasdaq: MITI) lost 29 cents, or 7.51%, to settle the session at $3.59.

Proceeds will be used for research and development on the company's product candidates. The remainder will be used to relocate the company's headquarters to the East Coast from Carlsbad, Calif. Micromet is a biotechnology company focused on developing antibody based products to treat cancer, autoimmune and inflammatory diseases.

Oscient buys heart drug Antara

Oscient Pharmaceuticals Corp. announced after the close Monday that it will purchase the U.S. rights to the cardiovascular drug Antara for roughly $78 million from Reliant Pharmaceuticals LLC, a Liberty Corner, N.J., privately held firm.

"I am not at all sure if this is good news or not, but the price is pretty hefty for Oscient," said a sellside market source after the news was announced.

Oscient shares (Nasdaq: OSCI) gained 3 cents in the regular session, or 4.84%, to close at $0.65.

The company said it has entered into an agreement with an international health care investment fund to provide $70 million in financing for the Antara acquisition.

Before the news, the sellsider said he had been encouraged Monday with a nice uptick in volume in Oscient shares. Some 916,842 shares traded Monday versus the norm of 421,378 shares.

"I was like, alright! Finally there was the increase in volume I've been waiting to see. The price was not moving up yet because we still have some institutional selling, but it's nice to see some big buyers starting to take advantage of the low price," he said. "Now, I think we will see it moving up. I had expected a bounce on good Factive and Testim [Oscient antibiotics] sales, a third product, etc. This Antara news may add to that."

Atricure off 8% on CFO exit

Back into negative territory, AtriCure, Inc. took a dive Monday on news that its chief financial officer had resigned.

"I had thought last week this stock would flatline," said a New York-based buysider.

AtriCure shares (Nasdaq: ATRC) dropped 49 cents on the day, or 7.98%, to close at $5.65.

AtriCure said Thomas Etergino had resigned as vice president and CFO, effective Aug. 18, to pursue other endeavors. Until a successor is named, the company said president and chief executive officer David Drachman will work with the company's controller to manage finances.

West Chester, Ohio-based AtriCure is a medical device company that specialized in surgical devices designed to create precise lesions, or scars, in cardiac and soft tissues.

DepoMed drops nearly 5%

In another downside move, DepoMed, Inc. slid after an announcement that it has amended the licensing agreement with Esprit Pharma, Inc. for the antibiotic ProQuin XR with the private firm that calls for them to jointly pay for the marketing costs. The revision comes after the $10 million license fee due Depomed was not made when it came due Friday, and Esprit was given more time to make the payment.

"The news today is negative. Esprit can't make the sales to pay the freight for DepoMed's first product," said a buyside analyst in Atlanta. "DepoMed's stock price this month has also taken a serious hit. The Street's model (cash flow) by definition will be negatively affected because any income from Esprit is pushed out further and previously anticipated income is not there."

DepoMed shares (Nasdaq: DEPO) fell 19 cents on the day, or 4.42%, to $4.11.

ProQuin XR is a once daily, extended-release tablet that has been approved by the FDA for the treatment of uncomplicated urinary tract infections.

Under the revised agreement with Esprit, DepoMed said it will co-promote ProQuin through its own sales force or through a contract sales organization or other third party. In addition, there will be a joint marketing team developed. Meanwhile, DepoMed said it extended the due date for the $10 million license fee payable by Esprit until December.

"It's damage control," the buysider continued. "DepoMed must, with all speed, contract a third party to begin selling ProQuin in numbers where Esprit failed. As it stands now, DepoMed will have difficulty in attaining its goals in 2006. The one positive is that ProQuin is not the 'make or break' item on the income sheet."

Esprit link to Novavax, Indevus

With Esprit Pharma failing to make the DepoMed payment, the buysider said it raises questions about deals the East Brunswick, N.J.-based firm has with Indevus Pharmaceuticals, Inc. and Novavax, Inc.

"This ProQuin problem just makes you really nervous about the other things Esprit has going," the buysider remarked. "Especially since they supposedly have financing in place."

The company has a deal with Indevus to market the overactive bladder drug Sanctura and with Novavax for the menopause drug Estrasorb. In addition to ProQuin, it markets the urinary analgesic drug Prosed, which it inherited in September 2005 with the acquisition of Florida-based Metagen Pharmaceuticals, Inc.

Indevus shares (Nasdaq: IDEV) ended Monday off by 13 cents, or 2.44%, at $5.19 while Novavax shares (Nasdaq: NVAX) added 3 cents on the day, or 1.97%, to $3.62.

On March 30, Esprit announced that it has secured a $50 million credit facility from Drawbridge Special Opportunities Fund, a fund managed by an affiliate of Fortress Investment Group.

Discovery Labs up on hope

There hasn't been any news for a while from Discovery Laboratories, Inc., but traders said Monday that hopes seem to be a little higher that the company could go it alone if it cannot find a buyer for assets or the whole company outright.

Discovery Labs shares (Nasdaq: DSCO) gained 16 cents on the day, or 9.94%, to end at $1.77.

The last press release about progress on stability was four weeks ago Tuesday, one buysider said. At that time, Discovery Labs said it would be providing more information "in the not too distant future." The buysider said he expects news this week or it will be a wait until after second quarter results, around Aug. 10.

Discovery Labs shares have suffered, and come back somewhat, from an FDA setback relating to manufacturing trouble with its new drug Surfaxin for respiratory infections in premature infants. Amid the turmoil, the company hired Jefferies & Co. about a month ago to identifying and evaluating strategic alternatives intended to enhance the future growth potential.

"I'm trying to picture how discussions are going, and frankly I'm concerned. I can see suitors drawing a firm line in the sand at $2 to $2.50 a share (knowing the company's balance sheet and the necessity for some alliance/buyout or what have you), which pisses me off quite frankly for a product worth at least $5-plus a share even with the current FDA timeline to approval," the buysider said.

"This stinks. I guess the only upside is that a number of pharmas have been quite open about their desires to expand portfolios through buyouts, but I am not sure how strong a hand Discovery Labs has and I really would rather refinance, even if it means some dilution, and stay independent for a short term hit to fully realize the value of this asset down the road $2.50 does nothing for me."

Prana strikes new high

In another big gain, Prana Biotechnology Ltd. shares surged to a new 52-week high after the tiny Australian biotech drug maker said Monday it plans to start a mid-stage clinical trial of PBT2, its experimental Alzheimer's drug, in fourth quarter. The Australian biotech also noted that it has noted a spike in its stock in response to extensive media coverage arising from the recent release of encouraging results on PBT2.

Prana shares (Nasdaq: PRAN) shot up $1.08, or 65%, to close at $2.74.

"I think this one is just going to keep running," said a buyside market source. "What they have going is very exciting on Alzheimer's."

Last Wednesday, data from rodent trials showed PBT2 improved memory in five days, reduced a type of protein deposit in the brain associated with Alzheimer's and restored function to impaired nerve tissue. Early stage human studies have shown that PBT2 is safe in the doses proposed for treatment.

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