NPS Pharma drops 19% to new low; Avigen up; CV Therapeutics drops 5%; Pozen pushed up 11%

By Ronda Fears

Memphis, June 12 - NPS Pharmaceuticals, Inc. was crushed Monday after announcing an "aggressive" restructuring plan to cut costs that included axing more than half its workforce and severing plans to commercialize its osteoporosis drug Preos in the United States.

Parsippany, N.J.-based NPS Pharma said it planned to significantly reduce cash burn, reprioritize its development portfolio and leveraging its research and development assets. Toward that end, the company said it was reducing staff by 53% and discontinuing all activities related to the commercialization of Preos in the United States.

Preos has been approved in Europe, where it is known as Preotact, and NPS Pharma's European partner Nycomed Pharma Holding AS, a private concern, launched it abroad last week.

"I am surprised it took so long to make this move. Cash burn was out of control and this is a big step in the right direction," said a sellside trader in the stock.

"The Preos approvable letter [March 10] may actually be a blessing in disguise. NPSP has now slashed costs significantly. I doubt it would have happened with Preos approval. We'll see how well Preotact does in Europe. Meanwhile, this was absolutely the correct management decision and I am surprised by the sell-off."

NPS Pharma shares (Nasdaq: NPSP) fell $1.04 on the day, or 18.64%, to settle Monday at $4.54. On March 9, just ahead of the Food and Drug Administration approvable letter for Preos, the stock was at $14.04.

NPS Pharma said the delay in U.S. approval of Preos forced it to discontinue all activities for the U.S. launch of the drug. The company has previously said it may file an amendment with data from existing and ongoing studies or initiate a new clinical trial to collect additional benefit/risk data.

The company said it will focus clinical activities on teduglutide for gastrointestinal disorders and work to accelerate it also for Crohn's and other indications.

NPS cash burn still worrisome

Reactions were tepid to NPS Pharma's cost cuts because of the resultant cash position estimates, buyside sources said.

In addition to the Preos stall in the United States, the company said it would terminate the agreement with Allergan, Inc. to promote Restasis, close its facility in Mississauga, Ont., and sublease 50% of its Salt Lake City facility. Additionally, the board of directors has reduced director compensation to cut costs.

As a result of the measures, the company estimated its cash burn for 2006 will decrease to between $135 million and $145 million and it expects to end 2006 with two years of cash with a year-end balance of $114 million to $124 million.

"Even after this restructuring, I can think of two reasons for the sell-off," said a buysider. "First, there was probably still some value assigned to Preos in the U.S. until today, but that may now be zero. Second, the cuts may not be deep enough to suit some people, since we're still looking at about $135 million burn this year."

Avigen edges up on trial launch

It was a down day for most of the biotech group Monday, following the broader stocks lower on pressure from inflation jitters. Avigen, Inc. was up just slightly on news that it was starting a phase 2a trial for its AV411 neuropathic pain drug, but sources thought the move would have been better on another day.

"Avigen is a good bet, just on the basis of the drug's [AV411] history," said a buyside analyst. "Avigen is one of the few bright spots in an otherwise weak market, as far as I am concerned."

Avigen shares (Nasdaq: AVGN) closed out the day higher by a penny at $5.90. Volume was a low 87,871 shares, versus the norm of 125,925 shares.

Alameda, Calif.-based Avigen announced approval to begin a phase 2a trial with AV411 at the Royal Adelaide Hospital in Adelaide, Australia, to assess safety, tolerability and preliminary indication of efficacy in neuropathic pain patients suffering from diabetic neuropathy. This dose-escalating trial also is designed to generate data to support a larger U.S. clinical trial in 2007.

Avigen hopes to submit a U.S. Investigational New Drug application at the end of 2006. In addition, AV411 is being explored for utility in additional neurological indications. AV411 is a first-in-class orally bioavailable small molecule. While considered a New Chemical Entity in the United States and Europe, the drug was first approved in Japan more than 15 years ago.

"Finally, we see the first turn up ahead. It's good to see [AV411] in the clinic at last. Avigen already knows it is safe. The question is: how effective will it be? Based on the animal data alluded to, probably pretty good," said the buysider. "The microglial target is one that may allow Avigen to seek other applications such as Alzheimer's and Parkinson's. But it should be noted that there are other companies busily developing anti-glial drugs. So they need to crank."

CV Therapeutics drops on deal

CV Therapeutics, Inc. dropped sharply on news of a license agreement with PTC Therapeutics, Inc. in which it could pay up to $345 million for the development of orally bioavailable small molecules through the application of PTC's proprietary GEMS (gene expression modulation by small-molecules) technology.

A trader attributed the stock's drop, however, to CV Therapeutics being "in a shorters death spiral."

CV Therapeutics shares (Nasdaq: CVTX) lost 77 cents, or 5.16%, to $14.16.

Under the collaboration, PTC and CV Therapeutics will jointly select five targets, including targets with the potential to raise HDL - high density lipoprotein, or "good" cholesterol - through a collaborative process of determining the applicability of the GEMS technology to targets of interest.

CV Therapeutics will make an initial payment to PTC of $10 million and potential milestone payment of up to $335 million plus royalties on worldwide net sales of products developed pursuant to the collaboration. PTC retains the option to co-fund research and development for increased royalties or co-promotion rights.

"It's now at a valuation I would have thought unimaginable," with the news on the tape, said a buyside market source. "Some reputable folks are saying this is more than a garden variety correction. Whatever it is, it is not a market to hold speculative stocks like CV Therapeutics. I plan to sell puts and eventually go long the stock, but at much lower prices. Other than a bounce now and then, the market is likely to be ugly until after the election in November."

South Plainfield, N.J.-based PTC is a private biotech concern.

Pozen sees buying on weakness

Pozen, Inc., however, recovered more than 10% from the beating it took last week on the FDA's request for more information on its proposed migraine drug Trexima. Players said it was a tepid climb back from the 60% slide last week, though, because of risk aversion in the market right now.

"I think you have to define high risk, and everyone's definition is different. Also, high risk of what, going down 10% or 20%? What is the payoff of the risk, up 30% or 40% or 50%? What time frame are we looking at?" said a buyside source in Florida. "These are the questions to ask, not just some verbiage of 'the sky is cloudy and it could rain.' "

Pozen shares (Nasdaq: POZN) added 60 cents on the day, or 10.87%, to settle at $6.12.

"Even a blind man can see this is where the bottom is. It's up from Friday's close all day. Some margins are and will be called today and tomorrow," said a sellside trader. "Aside from that, the only sellers are day traders. This is where you look for a signal that all the carnage is done. This signal has just been established. This afternoon the stock will trend higher."

RBC Capital Markets analyst Ken Trbovich said in a report Monday that he saw the current price as an "excellent entry point" for investors willing to ride out the process of responding to the FDA's request for additional safety information.

"We believe the market has overreacted to the unanswered safety question. If the FDA's safety concerns were terminal for the product, we believe the agency would have issued a 'Not-Approvable' letter," Trbovich said. "Therefore, we think the potential exists to resolve the safety issue without the need for additional safety studies. The downside risk in the stock is very low at current levels, in our opinion, given the value of the pipeline and the potential value of Trexima in the worst case scenario."

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