Earnings sends Draxis' stock down 5%; Stellar reports increased revenue for first quarter

By Sheri Kasprzak

New York, May 11 - Draxis Health Inc.'s stock took a hit on Thursday after reporting that revenues for the first quarter were off 16% on a year earlier.

The stock fell 5.18%, or 22 cents, to close out the session at $4.03 (Nasdaq: DRAX).

Draxis's consolidated revenues for the first quarter of 2006 dropped 16% to $19.1 million from $22.8 million for the first quarter of 2005.

Net income for the quarter was also off with $1.7 million reported for the quarter ended March 31, 2006, compared to a net income of $3.3 million for the same quarter of 2005.

"[The drop in stock] is all on news," said one sellside trader when asked about the impact of the earnings on the stock. "Any time you have news like this, your stock is going to drop. I do think they're going to have to get their act together but I wouldn't start selling off just yet. I'd watch them, see what they do in the coming quarter."

Even so, the news sent the volume of shares traded up a bit, with 48,975 shares traded compared to the average 38,725.

"We really don't like Draxis at all," said one buysider when asked about Draxis and its lackluster earnings results. "They had so many setbacks last year and this [the earnings] doesn't improve our view of them."

Among those setbacks, according to a statement released by Draxis Thursday morning, was the fact that full production of the company's injectables did not reach normal levels until March.

"This quarter of 2006 was impacted by reduced production in the sterile products area of our contract manufacturing segment during the early part of the quarter," said Draxis chief Martin Barkin, in the release.

Even so, Barkin said he doesn't feel the production lapse will be an issue in the coming quarters.

Draxis, based in Mississagua, Ont., develops sterile lyophilized products, as well as radiopharmaceuticals, used to treat certain types of cancer.

Another loser following earnings was Stellar Pharmaceuticals, Inc. The market watched its stock dip 5.94%, or 6 cents, to end the day at $0.95 (OTCBB: SLXCF).

The earnings report also cut the trading volume of Stellar's stock in half. On Thursday, 3,375 shares were traded compared to the average 6,748.

According to the earnings statement, Stellar's revenue for the first quarter increased to $446,000 from $425,000 for the same quarter of 2005, an increase of 4.9%.

The net loss for the quarter was $354,000, compared to a net loss of $455,000 for the first quarter of 2005.

The London, Ont.-based drug maker develops treatments for interstitial cystitis, an inflammatory disease of the urinary bladder wall.

Metabasis's stock climbs

In other earnings news, Metabasis Therapeutics, Inc.'s stock improved after the drug company released its first-quarter earnings report.

The stock gained 3.4%, or 26 cents, to close at $7.88 (MBRX).

The company saw revenues of $973,000 for the first quarter, compared to revenues of $397,000 for the same quarter of 2005 and the net loss for the first quarter was $7.5 million. For the same quarter of 2005, Metabasis reported a net loss of $6.2 million.

San Diego-based Metabasis is focused on treatments used for chronic ailments affecting pathways in the liver.

Neurologix wraps $12 million PIPE

Over in the PIPE market, Neurologix, Inc. closed up a $11,999,995 offering of series C convertible preferreds.

A group of investors including General Electric Pension Trust, the DaimlerChrysler Corp. Master Retirement Trust and funds managed by ProMed Management, Inc. purchased 342,857 preferreds at $35.00 apiece.

The 9% preferreds are convertible into 19.66 common shares each.

The group of investors received warrants for 2,224,719 shares, exercisable at $2.05 each.

Neurologix intends to use the proceeds from the deal for working capital and general corporate purposes.

The stock gained 10 cents, or 5.56%, after the offering was announced Thursday morning (OTCBB: NRGX).

"We are extremely pleased that these major institutions have chosen to invest in Neurologix at this critical and exciting period in the company's history," said Michael Sorell, Neurologix's chief executive officer, in a news release from Thursday morning.

"As we formally complete our landmark phase 1 trial of gene therapy for Parkinson's disease this month, this transaction will facilitate further development of this program toward our eventual goal of bringing to market a gene therapy product for this devastating disorder.

"This funding will also help us establish manufacturing arrangements for our Parkinson's disease product, which will be necessary for a pivotal trial and, subject to [Food and Drug Administration] approval, for commercial sales. This financing will also allow us to advance our clinical gene therapy program in epilepsy and bring to completion the phase 1 clinical trial for that program. This will also facilitate the expansion of our ongoing pre-clinical efforts in Huntington's disease and other neurological disorders."

Neurologix has gone to the PIPE market for cash before, settling a $2 million stock deal with Medtronic International on May 2, 2005 and wrapping a $3.5 million stock offering on March 4, 2005.

In the May 2005 placement, the company sold shares at $1.752 each and in the March 2005 deal, the investors bought shares at $1.30 each.

On May 2, 2005, the stock gained 20 cents to close at $2.25 and on March 4, 2005, the stock closed unchanged at $2.15.

Located in Fort Lee, N.J., Neurologix is a research and development company focused on treatments for brain and central nervous system disorders.

Avigen's $21.2 million deal

In other biotech PIPE activity, Avigen, Inc. secured agreements for a $21.2 million private placement.

The company plans to sell roughly 3.9 million shares at $5.37 each to a group of institutional investors. The exact number of shares being issued could not be determined by press time Thursday.

The price per share was an 11% discount to the company's $6.04 closing stock price on May 10.

The offering is scheduled to close May 15.

When the deal was announced Thursday afternoon, the stock dropped 24 cents, or 3.97%, to close the session at $5.80 (Nasdaq: AVGN).

The proceeds will be used for the expansion of planned development programs to pursue additional applications for the company's current neurologic compounds. The rest will be used to accelerate the development of the company's non-core compound, AV513, used to treat hemophilia and other bleeding disorders.

Based in Alameda, Calif., Avigen is a biopharmaceutical company focused on treatments for neurological disorders.

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