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Biotech Roundup

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Quick thoughts on items scientific and fundamental

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The biotech sector seemed to be emerging from its funk, but one day's action (Wednesday's 122 advancers out of 159 companies in the NBI) isn't enough to let us know for sure whether we're done with the traditional April pullback. While we sit on our hands (a little) where specific stocks are concerned, we're glad for the time to cast about for additional ideas. As I Buzzed earlier in the week, we made a list of those companies that traded up on no news on the worst days and will start there.

Targeting nicotine

In the journal Proceedings of the National Academy of Sciences (PNAS), investigators report molecular proof that smoking interferes with the ability of chemotherapy to kill lung cancer cells. We've known for a long time those who continue to smoke while being treated for cancer die faster. Now we have the first proof that nicotine actually interferes with chemotherapy. One important factor here is that it is nicotine, not the myriad of other crap in cigarette smoke, that's doing the damage. This means those who are trying to quit by using nicotine-replacement aids like patches or gum while on chemotherapy aren't doing themselves any good. Tangentially, Nabi Biopharmaceuticals (NABI) is working on NicVAX, a vaccine that causes the body to attack nicotine. While the PNAS study has nothing to do with NicVAX, it would make administering NicVAX to cancer patients who haven't quite kicked that habit an interesting hypothesis to consider.

The reason for the ugliness?

"Good morning Joe, this is Bart… your broker. I've got a great new idea I wanted to discuss with you."

"Bart! You read my mind! I was going to give you a call today," says Joe.

"Really?" says Bart, "What can I buy for you today?"

"Sorry, Bart, that's not what I mean. I have most of my cash tied up in real estate and I've done so well this year my accountant says I owe a bunch of money to the IRS. Can you sell $25,000 worth of stock out of my account and wire me the money by Monday?"

Our broker friends tell us this conversation has been repeated thousands of times across Wall Street in the past couple of weeks. Is that the reason for the ugliness? Part of it, probably, but there is lots of ugliness out there one can pick to tag as the "reason" for the recent declines.

Moves in oncology stocks

ASCO abstract titles are supposed to be posted online the week after next. Keep an eye out as it might trigger some moves in oncology stocks. Abstract books should be sent to the favored few insiders in mid-May, whereupon the shrink-wrapped warning against trading on the information will be broadly ignored and stocks will move on this insider information.

IPOs

The most recent pair of biotech IPOs (Targacept (TRGT) and Vanda (VNDA)) dropped from their offering price, adding weight to what I have always believed: Never bother to buy a biotech IPO because you can always buy it cheaper later. The inability to get IPOs off at valuations seen as "suitable" is roiling the biotech VC world. IPOs are supposed to be exit events for VCs. Instead, they are turning into "down" rounds given the high valuations in the private side of the business. This is one more reason why private VCs are shifting their money to the public markets.

I have no specific opinion on either company, though Vanda inlicensed iloperidone from Titan Pharmaceuticals (TTP) so we're familiar with the shaky clinical history of that drug since we used to cover Titan. We stopped coverage of Titan after the CEO and CFO effectively shorted the shares of their own stock and profited from a decline from $63 to $2. These executives filed the proper Form 4 at the initiation of the trade, but did it on paper instead of electronically (back in the days when that could happen) so it never showed up during the due diligence process. Compounding this deception, they never mentioned it again in any SEC filing until the position closed. Titan's lawyers tried to spin this as "common practice", which is an outright lie – at least where biotechnology companies are concerned. We've asked about three dozen biotech companies whether such activity is allowed and all of them have said it is specifically prohibited or the CEO remarked he/she would fire anyone on their staff immediately who did such a thing. Amen to that!

Position in IBB calls

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