Aviron Could Make a Healthy Comeback By Nadine Wong Special to TheStreet.com 8/15/01 11:55 AM ET

The publicity surrounding stem-cell research has rekindled Wall Street's interest in biotech stocks. But instead of embarking on a long-term love affair with the sector, traders will probably just look for opportunities to profit from short-term bounces.

This summer's next big biotech news might be coming from Aviron (AVIR:Nasdaq - news - commentary). The California-based biopharmaceutical company is expected to respond after Aug. 31 to concerns about the influenza vaccine it developed, called FluMist. It's the first flu vaccine that doesn't require a needle; rather, it's administered through the nose.

In late July, the company announced that the Food and Drug Administration advisory committee voted not to recommend FluMist's approval because of safety concerns. If it had gotten approved, it would've been ready for this year's flu season. In response, investors punished Aviron stock, which plummeted from $40.80 July 25 to a new 52-week low of $23.10 by Aug. 1. Wide price swings are nothing new to Aviron, as its stock reached as high as $70.61 Nov. 1. The stock closed Tuesday at $27.89.

Aviron Takes a Beating But the downward slide may be stopping.

Aviron appears to have finally stopped its downward trend, as its share price and trading volume have been slowly creeping up. What does this mean? Well, short-term players might be taking an interest in Aviron solely as a trading vehicle, because they undoubtedly know about its track record. The history of FluMist hasn't exactly been smooth sailing. The vaccine has had its share of setbacks, which affect the Aviron's valuation, but haven't hindered investors' interest in the company.

I'm concerned that Aviron's stock will continue to feel pressure until company management meets with the FDA and gives further guidance. Although its share price seems to have hit bottom, management is maintaining a positive outlook. Nevertheless, new money shouldn't be put to work in this stock until Aviron meets with the FDA and decides on the next step to get FluMist on the market.

Lately, I'm not comfortable with the market's behavior and treatment of Aviron shares. Before Aviron's late-July announcement, rumors were flying that someone was shorting its stock, while Morgan Stanley maintained its long position on the company: hence the stock's volatility. (Morgan Stanley does have an underwriting relationship with Aviron.)

More recently, Aviron shares rose 9.4% Monday on positive comments from Eric Schmidt, an analyst at S.G. Cowen. He said, "Although the FluMist delay is a disappointment, the drug has been shown to be safe and efficacious and has the potential to be a blockbuster product once approved." He noted that Aviron shares are worth between $34 and $41, and shares closed at $29 Monday. (S.G. Cowen has no recent underwriting relationship with Aviron.) He sees a potential upside in the stock, but I'm worried about the short-term players and any pressure they may exert on Aviron's share price.

However, I do believe Aviron is getting closer to FDA approval for FluMist. The company's strength is that is has conducted numerous large clinical trials that have demonstrated FluMist can effectively prevent influenza in children while decreasing the number of doctor visits and episodes of ear infection. FluMist is also effective in healthy workers and decreases the number of sick days.

Results from several Phase III clinical trials indicate that it is as effective as current vaccines and theoretically could be more effective because it generates two important types of immunity. The application submitted to the FDA includes data from 16 clinical trials on more than 24,000 subjects. Also, Aviron has entered into a co-promotion agreement for FluMist with Wyeth Lederle, currently the No. 2 player in the influenza vaccine market.

Earlier in the year, Aviron raised more than $380 million in concurrent common stock and convertible preferred subordinated notes offerings, thereby filling its coffer. This reduces future financial risk as Aviron continues to prepare for commercial-scale manufacturing. If approved, the company's novel, patient-friendly delivery method will enable its flu vaccine to expand the current market. Aviron believes FluMist can be ready for the 2002-2003 flu season and that it'll eventually lead the company to a path of profitability.

TheStreet.com and Wong are parties to a joint marketing agreement relating to the BioTech Sage Report, a monthly biotech newsletter written and owned by Wong. Under the agreement, TheStreet.com provides marketing services, including promotion of the BioTech Sage Report on TheStreet.com's Web properties and in her columns that appear on RealMoney.com. In exchange for these services, Wong shares with TheStreet.com a portion of the revenue generated by subscriptions to the BioTech Sage Report resulting from those marketing efforts.

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