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Trickle-down effect

Smaller caps led biotech in 4Q, but larger mid-caps were big gainers in 2010

Although companies in the $1-$1.9 billion market cap range were the big winners for 2010 with a 28% gain, last quarter saw gains migrate into lower rungs of the market cap ladder.

Small caps with $200-$499 million market caps were up 15%, while those in the $500-$999 million market cap group added 14% in 4Q10.

The stars among the small caps were cardiovascular play Amarin Corp. plc and oncology company Exelixis Inc., up 217% and 109%, respectively.

At the end of November, Amarin jumped on positive Phase III data for its AMR101 to treat hypertriglyceridemia. It is expecting more Phase III data for the candidate to treat mixed dyslipidemia in mid-2011. The company plans to submit an NDA this year for the ethyl ester of eicosapentaenoic acid (ethyl-EPA).

Exelixis climbed on positive Phase II data for XL184 to treat advanced solid tumors, as well as a subsequent restructuring to focus on that candidate. Earlier last year, Bristol-Myers Squibb Co. returned rights to XL184.

This year, Exelixis plans to start a Phase III trial of XL184 for castration-resistant prostate cancer (CRPC) and submit an NDA for the compound to treat medullary thyroid cancer (MTC).

Among the smaller mid-caps - those valued between $500 and $999 million - InterMune Inc. was the top winner with a pop of 156% after EMA's CHMP recommended approval of Esbriet pirfenidone to treat mild to moderate idiopathic pulmonary fibrosis (IPF) in adults.

In May 2010, FDA issued a complete response letter for pirfenidone, asking for an additional clinical trial to support the efficacy of the compound. InterMune will provide details regarding its U.S. registration strategy this quarter.

The sub-$200 million micro-cap companies broke even on the quarter, but the group was off 11% for the year.

Some of the biggest losers in the small and micro-cap groups were cardiovascular, neurology and cancer company Resverlogix Corp. (down 41%); drug delivery and neurology company Alexza Pharmaceuticals Inc. (-61%); and endocrine and drug delivery play Biodel Inc. (-66%).

Biodel plunged on a complete response letter for diabetes candidate Linjeta (formerly VIAject), while Alexza fell on a complete response letter for Adusuve Staccato loxapine (AZ-004) to treat agitation in patients with schizophrenia or bipolar disorder.

Resverlogix was off on a Phase II miss for RVX-208 to treat atherosclerosis in patients with stable coronary artery disease (CAD).

Among the front-running larger mid-caps from $1-$1.9 billion, infectious disease company Pharmasset Inc. was the top performer with a gain of 48% on the quarter after FDA granted Fast Track designation for PSI-7977 to treat chronic HCV. The company also reported positive Phase I data for PSI-938 to treat chronic HCV genotype 1 infection.

The group outperformed despite a couple of big hits. Infectious disease play Intercell AG fell 30% after discontinuing development of its Travelers' Diarrhea vaccine patch. It missed the primary endpoint of significantly reducing the incidence of all types of enterotoxigenic Escherichia coli vs. placebo in the Phase III ELT301 and

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