Market value tracking: Dura Pharmaceuticals Inc.
Let Interneuron Pharmaceuticals serve as a reminder that the lines of logic and intuition often diverge in stock trading. This week Ebb & Flow chronicles IPIC's roller-coaster week of news events: The Apparently Good ("Prominent weight loss clinic says Redux cuts into business"). The Apparently Bad ("Redux label change shows increased odds of side effect"). And The Unpredictable ("Guess the price change").
Wednesday - One drug's impact
Despite doubling its earnings per share to $0.95 from $0.46, Jenny Craig lost a third of its value on Wednesday. JC closed at $11.50, down $5.625. In its earnings statement, the company said that IPIC's Redux dexfenfluramine may be carving into demand for weight loss centers like Jenny Craig. "Heightened public interest in new weight-loss pharmaceuticals such as dexfenfluramine (Redux), presents a new challenge to our company," JC said. "Recent publicity relating to these new drugs appears to be responsible for softened demand during the summer period."
JC has had its eye on such drugs as a part of its overall program, which includes proper nutrition, moderate exercise and lifestyle modification. "We've been evaluating research into the pharmaceutical approach for quite some time," said spokesperson Brian Luscomb. "We've been following Redux's approval closely. We do consider weight loss drugs to be an adjunct to the Jenny Craig program."
JC is test marketing in three cities a program that includes three weight loss drugs, including Redux.
IPIC spokesperson Bill Boni agreed that "the drug is not a competitor, it is an adjunct. It's a valuable way to help their own clients stay on those programs."
While the market pummeled JC, traders didn't provide any rewards to IPIC. On Wednesday, IPIC lost $1.125 to $25.25. "It doesn't make any sense whatsoever," Boni lamented.
Thursday - Label change
Two weeks ago, IPIC alerted investors to a McGill University study that tested the effects of weight loss drugs, including Redux, on primary pulmonary hypertension (PPH), a rare lung disorder (see BioCentury, Aug. 19). That study, which will be published this week in the New England Journal of Medicine, suggested a higher rate of incidence of PPH than initially disclosed on Redux's label. The study suggests an incidence rate of 23-46 per million, while Redux's label reads 18 people per million.
Doubts about PPH had been persistently raised by some FDA staff and others opposed to the drug in its regulatory review.
Last week IPIC and partner Wyeth-Ayerst said the Redux label would be changed. While the wording isn't finalized, "conceptually, we have agreed with the FDA that the risk per million will be adjusted to within the 23-46 per million range," said Boni.
The new label may suggest to both patients and doctors that Redux is not a drug to experiment with, especially for patients who don't qualify under the label's obesity parameters. Redux is recommended for persons with an initial body mass index (BMI) of 30 kg/m 2 or greater. The approval also includes persons with a BMI between 27 kg/m2 and 30 kg/m2 in the presence of other risk factors such as hypertension, diabetes and elevated cholesterol. A BMI of 27 corresponds with excess weight of about 20 percent, and a BMI of 30 corresponds to excess weight of about 30 percent. IPIC said about 45 million Americans are included in the recommended population.
"It will reinforce our positioning of the drug," Boni said. "It should be given to people where obesity is a serious risk factor. That is a key objective in our marketing program. This is not a magic bullet."
This time, despite the label change announcement, IPIC gained $3.50 on Thursday. The shares finally finished the week up $4 (16 percent) to $29.50.
Going forward - product potential
Wyeth-Ayerst launched Redux on June 13. Within two weeks, the company reported "purchases in excess of $50 million" at a second quarter analyst meeting. It's difficult to project annual sales based on those numbers, said spokesperson Marily Rhudy, because they "represented stock-in to pharmacies and buyers."
"A lot was pipeline filling," Boni said.
Montgomery Securities analyst John Borzilleri, who covers Wyeth-Ayerst parent American Home Products, predicts U.S. Redux sales of $115 million in in 1996, $230 million in 1997, $500 million in 1999 and $600 million by the year 2000.
IPIC receives manufacturing revenue from Redux. In its third quarted ended June 30, IPIC had $1.1 million in manufacturing revenue related to Redux, Boni said.
NEW TO MARKET: Transcend Therapeutics (Pro-posed:TSND) filed to sell 2 million shares at $12-$14. A $13 IPO price would give the company a $75 million market cap. The Cambridge, Mass., company, previously known as Free Radical Sciences Inc., is developing treatments for diseases caused by oxidative stress, focusing on critical care settings. Transcend plans to begin Phase III trials early next year of Procysteine in acute respiratory distress syndrome (ARDS). Baxter will own almost 28 percent of the company after the IPO. A group of VCs - including Advent Group, The Venture Capital Fund of New England and Sprout Capital - will own almost 34 percent.
IPO LAPSES: Aviron, which filed in June to sell 3 million shares at $11-$13 in its IPO, backburnered the deal, electing not to refresh the numbers it had filed with the SEC. "We decided to let everything expire," said Vera Kallmeyer, vice president of corporate development. "If the markets are there, we would revise the IPO," she said. Otherwise, Aviron probably will try to raise $8-$12 million in a small private placement this autumn. Aviron had $14.5 million in cash as of March 31. Meanwhile, the company continues to make clinical progress, starting a Phase III trial for its intranasal flu vaccine (see B6).
FOLLOW-ON WITHDRAWN: Pharmacyclics (PCYC) pulled its 2 million-share follow-on, citing market conditions. The company's shares have fallen 36 percent since it filed for the offering in June. The company, which is developing products based on its biometallic chemistry technology, went public last October, selling 2.15 million shares at $12. This time around it couldn't justify the dilution at current prices. It closed at $12.25 on Friday.
"We are fortunate that we're not in a desperate cash need," said Cheryl Jaszewski, vice president of finance and administration. PCYC had $22 million in cash as of June 30. For its fiscal year ended June 30, it lost $8.2 million ($1.05) on revenues of $301,000. (PCYC earnings, B9).
Jaszewski attributed the price decline to a combination of poor markets and PCYC's low trading volume. "A big day for us would be 4,000 shares traded," she said. "Our price slide was on very low volume."
LOSING YOUR SHORTS: It's well-known that short sellers like to attack companies that file for follow-ons. Floating a large percent of the company in a follow-on is like chumming the water. "If you have a $100 million valuation and you want to raise $30 million, that's a large portion of your valuation," said Geert Kersten, CEO at Cel-Sci (CELI). "The shorts know that the stock will go down."
Kersten's solution is to pursue a handful of smaller private financings. The company, which is developing immunotherapies for cancer, AIDS and tuberculosis, last week closed on a $5 million preferred stock round (see B10). "We have raised about $11 million over the last six months through a variety of financings," said Kersten. "Unless you have huge valuations, it's better to do financings in small steps. It's more work, but it doesn't give the short sellers a chance to attack the stock."
CELI closed at $7.562 on Friday. With 7.25 million shares outstanding, CELI is up 110 percent in the year.
CLEANING THE SLATE: One factor that can depress a stock is when a former manager holds a large stake in locked-up shares. When the lock-up period expires, the shares can get dumped quickly into the float. Because of this phenomenon, the market often "undervalues" the company by discounting that block of shares. Last week Theratechnologies (MSE:TH.B) cleaned the slate. Former CEO Denis Tancrède, who left the company in August 1994, had held more than 2.3 million shares. In July, Tancrède sold 1.75 million shares at C$3 (US$2.18) in a formal secondary offering. Last week, he sold the remaining 1.2 million shares in a privately negotiated transaction at prices ranging from C$3-$3.40 a share. Although the new investors weren't disclosed, "their intent is to be long-term shareholders," said Vice President of Finance Jean Pagé.
MANAGEMENT TRACKS: Michael Rosen joined ImmunoTherapeutics (IMNP) as CEO. He had been CEO of Pharma Mar S.A., a developer of cancer drugs from marine organisms. Rosen succeeds Gerald Vosika, who remains chairman and chief scientific officer . . . Ligand (LGND) appointed Andres Negro-Vilar, formerly VP of research at Wyeth-Ayerst Research, as senior vice president research and chief scientific officer. He replaces Robert Stein, who left to pursue other opportunities. David Robertson, vice president of discovery research, also resigned. Negro-Vilar has particular experience in women's health and androgen receptors, where LGND has ongoing programs.
EBB & FLOW: Dura (DURA) climbed $5.75 to close at $32.50 on Thursday's news that it is acquiring U.S. marketing rights to two antibiotic products from Eli Lilly for $100 million (see BioCentury Extra Aug. 23). DURA held on to a 15 percent gain, closing Friday at $31.375. . . . Amgen (AMGN) closed up $2.50 at $58.25 on 4.3 million shares on Wednesday's news that it received another patent covering its Epogen erythropoietin product. The shares continued to surge over the remainder of the week, closing at $63 on Friday, up 8 percent. . . . BioTime (BTIM) surged $3.50 to close at $21 on Monday's news that it would move into Phase III trials of its Hextend blood substitute. BTIM closed Friday at $19.50, up 11 percent. . . . DNX (DNXX) rose $0.625 to $6.50 on Monday's news that it will merge with BioClin, a privately held clinical research organization. The stock gave the gain back, closing at $5.875, unchanged for the week.