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Biotech Notebook: Investors Put Finishing Touches on the Year's 'Masterpieces'

Also, as Biotime's rights offering gets under way, the company awaits the FDA's nod for its newest drug.

It's the end of the year, and investors are holding tape-painting parties. Small-cap and big-cap stocks alike get a traditional little boost at year's end. No news required -- just light volume and a couple of buyers.

Orson Welles

started his adaptation of

Richard III

with an empty stage to depict his belief that an evil force came into a power vacuum. In the case of the market, rumors and innuendo flood these quiet weeks toward the end of the year.

"The game is plowing capital into names you already own," says a New York biotech hedge-fund manager. "It makes your fund's performance look better, and you get more capital next year. That means your big positions won't be as big a percentage of your fund; you're a bigger fish, you get paid more."

He adds ominously, "When your big positions are overvalued, the incentive is to buy rather than sell."

In health-care land,

Medimmune

(MEDI)

, a burgeoning biotech, was rocketing Wednesday. Rumors are that its drug

Synagis

, used to treat a respiratory virus in premature infants, will beat the numbers. It was up 2 1/2 to 99 1/2 Thursday. A company spokeswoman says Medimmune does not comment on sales.

Agouron

(AGPH)

is strong into the New Year, as old takeover rumors resurface. Agouron has said it is not for sale. It was up 13/16 to 58 1/8 Thursday.

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Algos

(ALGO)

, a company with a pain-killing drug at the

Food and Drug Administration

, ran up 9% on Wednesday with no news. It was up 1/8 to 23 3/8 Thursday.

Heavily shorted

North American Vaccine

(NVX)

,

Neotherapeutics

(NEOT)

,

Oxigene

(OXGN)

and

International Isotopes

(INIS)

? All going up on no news at all. North American has risen almost 30% since Monday; Oxigene rose 13% Wednesday; and International Isotopes ran up Wednesday, but it's giving back 1 3/4 Thursday. Neotherapeutics has risen 33% since Christmas.

Problem is for these companies, what goes up in December often comes down in January. "While this is a common end-of-the-year phenomenon, this year it seems more intense, especially because no one wants to short these things," says the hedge-fund manager. Last year, "right after

the

Hambrecht & Quist

health-care conference in mid-January, after options expire, these stocks will get killed."

*****

Only three weeks till

Biotime

(BTIM)

gets approval!

At least that's the story on the various chat boards. Biotime filed in late March for

Food and Drug Administration

OK for

Hextend

, a starch-and-water solution that keeps blood pressure up in patients undergoing surgery. Then, the story from the company was that the product would get an expedited, or six-month, review by the agency. That didn't happen. Now bulls hope for approval any day.

But there may be a bit of a stumbling block. In November, the company said that the FDA had "completed" its review of Hextend. The release said ominously that the agency wanted "several clarifications." The blood-volume expander company wasn't exactly expansive about what these clarifications were, but Biotime said they weren't difficult requests. Biotime officials didn't return a call seeking comment, but when the FDA asks for more information, it can be a bad sign.

Then, just a week and a half ago, the company filed for a rights offering of slightly more than half a million shares to existing holders. If you own Biotime and want to buy more, you can pony up and buy stock at a discount.

This is not a signal of strength, contends one longtime bear, a New York hedge-fund manager who is short the stock. (And this is a guy who believes that the company will get approval sometime in the next year.) The short-seller thinks that if the company were about to launch a multi-hundred-million-dollar product, as bulls have contended that Hextend will be, why offer shares? And why offer them at a discount? If insiders wanted to buy, they could do it on the open market.

Biotime gapped up a half a point Tuesday in the last hour of trading. Wednesday was the first of five days of trading that will determine the price of the rights offering. This week, the stock is up about 12%.

Even if the company gets the Hextend nod, the bearish argument is that it won't change the market for blood expanders as much as the company fans claim. And that's why the short-seller, who's seen the stock more than triple from its lows in July, is begging for approval soon.