Anadys up on Novartis details; Ariad, Nastech, ZymoGenetics mixed; Myogen zooms; Isis gains

By Ronda Fears

Nashville, Aug. 2 - Secondary offerings this week are meeting with mixed reactions, and biotech bankers said the "feel" of the market is still a bit shaky. Initial public offerings have had a tough go of it so far this year and continue to seem as if they could go either way, if the follow-ons are any indication.

Anadys Pharmaceuticals Inc. and ZymoGenetics Inc. were both higher Tuesday ahead of their follow-ons while Ariad Pharmaceuticals Inc. and Nastech Pharmaceutical Co. Inc. were lower.

Anadys' move was spurred largely by second-quarter results which, while showing a wider net loss, included financial details about a recent collaboration inked with Novartis AG worth an estimated $570 million over time.

Otherwise it was a very quiet day on the primary side of the market.

In other secondary action, biotech stocks were higher and stealing the show was United Therapeutics Corp., which shot up sharply Tuesday after the company reported its second-quarter profit nearly tripled on a spike in sales of its hypertension drug Remodulin. Net income surged to $12.2 million, or 49 cents per share, from $4.1 million, or 18 cents, a year before, and revenue jumped to $30.1 million from $18.3 million.

United Therapeutics stock closed the day up $14.22, or 26.21%, at $68.27.

"Many of these companies are often overlooked and yet have a great niche in the market," said a trader in New York. "We're seeing some people step out of their comfort zone to reach for some new names."

Myogen Inc. vaulted 30% before easing back somewhat Tuesday after the drugmaker late Monday reported second-quarter results. And, Isis Pharmaceuticals Inc., a biodefense play, spiked on news of another government contract.

Anadys highlights Novartis deal

Anadys Pharmaceuticals Inc. results and its outlook were dramatically impacted by a partnership with Novartis AG and that in turn is expected to greatly assist its follow-on stock sale. The stock gained 29 cents on the day, or 2.47%, to $12.03.

Anadys reported that its second-quarter net loss narrowed to $7 million, or 31 cents a share, from $10.9 million, or 50 cents a share, in the year-ago quarter. Sales more than doubled to $581 million from $214 million a year ago. At June 30, the company posted cash equivalents and securities totaling $21.4 million.

In June, Anadys entered into a license and co-development agreement with Novartis involving its ANA975 and additional Toll-Like Receptor 7 oral prodrugs for chronic hepatitis C and B infections, as well as other potential infectious diseases. The company also has collaborative deals with Roche Holdings AG.

From the Novartis partnership, Anadys gets $20 million up front, with potential future milestone payments estimated at $550 million.

"The past quarter was highlighted by the signing of our pivotal collaboration with Novartis," said Kleanthis Xanthopoulos, chief executive of Anadys.

"The collaboration is one of the largest for a compound in early stage clinical development. In addition to dramatically improving our company's financial outlook, we believe that this collaboration validates our position ... and enables us to more effectively advance other promising compounds in our pipeline."

The San Diego-based biotech is slated to sell 4 million shares with estimated proceeds of $51.35 million, including the greenshoe and assuming an offering price of $11.99 per share, after Thursday's close. Proceeds are earmarked for clinical and preclinical development of product candidates, for discovery research for new product candidates and for general corporate purposes, including working capital.

Other follow-on names mixed

ZymoGenetics, with a secondary offering slated for Wednesday's business, took off even more sharply than Anadys with the stock Tuesday gaining $1.27, or 7.13%, to $19.08.

Last week, ZymoGenetics filed a secondary stock offering of 6.5 million shares while also reporting financial results and said its pipeline has grown to four product candidates with the addition of IL-29 as a potential treatment for hepatitis C. The company posted a second-quarter net loss of $23.8 million, or $0.41 per share, down from a net loss of $24.5 million, or $0.46 per share, for second quarter 2004. Revenues slipped to $8.0 million from $8.4 million, attributed to lower license fees and milestones in addition to decreased royalties due to insulin patent expirations in certain European countries.

Nastech and Ariad were both lower Tuesday, however.

Ariad shares lost 13 cents, or 1.78%, to $7.19. The Cambridge, Mass.-based biotech is selling 6 million shares with estimated proceeds of $48.1 million, including the greenshoe and assuming an offering price of $7.48 per share.

On Monday, Ariad also reported second-quarter net loss of $14.1 million, or $0.27 per share, as compared to $9.2 million, or $0.18 per share, in second-quarter 2004. Total license revenue rose to $350,000 from $188,000. But the company said it is pursuing a global partner to move its endometrial and prostate cancer drug into commercialization.

Nastech dropped sharply, however, losing $1.37 on the day, or 9.27%, to close at $13.41. The Bothell, Wash.-based biotech is selling 1.5 million shares. Nastech is involved in the discovery of proprietary molecular biology-based drug delivery technologies for multiple areas, including inflammatory conditions, obesity and osteoporosis. Collaborative partners include Merck & Co. Inc.

After Monday's close, Nastech posted a net loss of $7.5 million, or 62 cents per share, for second-quarter 2004. Revenue climbed to $1.6 million from $45,000 a year previous.

Isis roars higher on grant award

Isis Pharmaceuticals got another shot in the arm Tuesday after announcing that it has been awarded a government grant for up to $4.9 million for its Tiger (Triangulation Identification for Genetic Evaluation of Risks) biosensor system.

The stock spiked upward by 24 cents, or 5.14%, to close at $4.91, and a convertible trader said its 5.5% bond due 2009 rose in tandem to 86 bid, 87 offered.

Isis' Tiger system will be used for the continued development of applications to diagnose infectious diseases and to identify and control hospital-associated infections. The grant was received from the National Institute of Allergy and Infectious Diseases, a part of the National Institutes of Health.

Stanford Group Co. analysts Dallas Webb and Aaron Reames said in a report Tuesday that the potential revenue from Tiger is not yet in the stock price.

"Note that the company only recently began talking about this in the second quarter and therefore we do not believe the street is placing any significant value on the technology at this time," the analysts said in the report. "We believe Isis is positioned as the leader in RNA targeted drug development and that now is the appropriate time for long-term investors to consider purchasing shares."

Myogen vaulted by results

Myogen Inc. climbed sharply after the company late Monday reported a wider second-quarter loss but provided an improved outlook and said trials on two cardiovascular drugs in late-stage development are going well. The stock largely reacted to an analyst upgrade that included a whopping increase in the price target on the stock to $28 from an earlier target of $8, according to a sellside market source.

The stock gained $2.41 on the day, or 21.63%, to close Tuesday at $13.55. In early trade Tuesday, the stock was up as much as 30.25%, the sellsider said.

"We made significant progress during the past quarter on our two late-stage product candidates, ambrisentan and darusentan," said J. William Freytag, chief executive of Myogen. While trials did not support continuation of the enoximone development program, Freytag said the company continues to be "excited by the opportunities that our two current product candidates present to positively impact the treatment of significant cardiovascular disorders.

"We will now focus our energy and corporate resources on these opportunities. We expect to report important clinical trial results for darusentan in August and ambrisentan by the end of the year."

After Monday's close, Myogen posted a wider second-quarter net loss of $21.5 million, or 60 cents per share, compared with a net loss of $13.2 million, or 50 cents a share, a year ago.

But Myogen said operating expenses would be below its prior outlook of $90 million to $100 million and that for the year it expects sales of its Perfan - a drug used to treat patients with acute heart failure and to wean patients from cardiopulmonary bypass following open-heart surgery - would range from $2.8 million to $3.4 million. For second quarter, Perfan sales were $752,000.

Myogen also said it anticipates full-year R&D contract revenues, primarily the product of collaborations with Novartis, of $6.0 million to $6.7 million. For second quarter those revenues were $1.6 million.

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