Biotech Notebook: Nastech, Amgen, PDL BioPharma

Skeptics of Nastech's nasal spray have gotten their due.
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Nastech Pharmaceuticals

(NSTK)

received a small bounce Wednesday after announcing a corporate restructuring and cost-cutting plan precipitated by the Nov. 6 decision by

Proctor & Gamble

(PG) - Get Report

to return rights to the nasal spray for osteoporosis.

The stock was crushed when P&G walked, falling 65% to $4.87 through Tuesday. On Wednesday, the stock rebounded a bit, closing up 92 cents to $5.79.

Regular readers know that I've been the bear to Jim Cramer's bull on Nastech, mainly because I didn't have much confidence in the company's technology platform. My skepticism was justified by P&G's decision.

Looking ahead, Nastech's current $84 million enterprise value is much more reasonable, but my doubts about the company's nasal drug delivery technology have not been assuaged at all. A P&G spokesman told

The Wall Street Journal's

Health Blog

that it gave up on the nasal osteoporosis program because "as we reviewed the most recent set of data, we just didn't see the necessary level of efficacy that we expected to see. The economics of the program do not warrant further investment from P&G."

Nastech's track record now counts two nasally delivered drugs -- for osteoporosis and obesity -- which have been returned by Big Pharma partners. Nastech continues to develop these drugs on its own, but you can understand why I'd recommend caution.

The other big piece of the Nastech restructuring is the decision to spin out its

RNAi research into a separate company that will eventually be floated as its own publicly traded entity. The strategy is similar to what

Cytrx

(CYTR)

is

doing with its RNAi gene-manipulation subsidiary.

I understand Nastech's desire to create a separate RNAi company, which it will call MDRNA. Management is saying all the expected things about an undervalued asset that needs to be "unlocked" to create shareholder value. And, yes, RNAi is hot in Wall Street's eyes (although not as hot as it was a few months ago).

But here's what nags at me: This move smacks of financial window dressing. It's a gimmick that reminds me just a bit too much of the "tracking stocks" foisted on gullible investors during the dot-com bubble.

If Nastech's RNAi platform was really compelling, why wasn't it pushed to the forefront earlier? Why hasn't a larger company with deeper pockets stepped in already to partner?

I've been talking to a few

Amgen

(AMGN) - Get Report

bears this week about where they think the stock is going now that the FDA has released the new label for the anemia drugs Epogen and Aranesp.

Their unanimous response: lower!

OK, maybe that's not too surprising given their viewpoint, but the picture they paint of Amgen in the next year is bleak. How bleak? Well, they think Amgen is in bad enough shape that 2008 EPS guidance could come in below that of 2007. In other words, negative earnings growth.

Amgen executives have been telling institutional investors and analysts that 2008 will be a "reset year." What that means exactly isn't entirely clear, but it doesn't sound good.

No one expects much revenue growth from Amgen next year -- the consensus right now actually has 2008 total revenue slightly lower than the current year forecast. But the consensus EPS estimate for next year is higher by 3.5% -- $4.23 in 2007 going to $4.38 in 2008.

This means that on average, analysts expect Amgen to boost earnings per share by further cost-cutting, more share repurchases or a combination of both.

My den of Amgen bears, however, believes that the revenue outlook -- especially for the key anemia drug franchise -- is a lot worse than expected for all the reasons discussed

before, and more. That's what Amgen is hinting at when they use the term "reset year," they believe.

If the revenue shortfall is bad enough, no amount of cost-cutting or share buybacks will enable Amgen to grow earnings in 2008 -- even by an anemic amount. (Pardon the pun.)

By the way, Amgen won't give 2008 guidance on its fourth-quarter conference call in late January. Instead, the company intends to wait until February when it sits down with investors and analysts to discuss the company's experimental drug pipeline.

PDL BioPharma

(PDLI) - Get Report

shares continue to fall after the disclosure Friday that activist hedge fund Third Point Partners liquidated its entire stake in the company.

Investors seem to be interpreting Third Point's decision as a sign that PDL may not be having much luck finding a buyer for the company.

You can't blame anyone for coming to that conclusion. Third Point appears to have taken a small loss on its foray into PDL given that it bought into the company in the same price range as it sold in the past month or so, according to

Securities and Exchange Commission

filings. Puzzling, for sure, since Daniel Loeb, Third Point's managing partner, was extremely vocal in his opinion that PDL was undervalued.

A couple of people who've spoken with Third Point employees tell me that Loeb wasn't happy with the way PDL was going about the sale process, in part because Third Point was denied a chance to place someone on the company's board. In addition, some of the assumptions that Third Point had made in valuing PDL's core assets were proving to be too optimistic.

"The

sale process is a mess," said one investor who's been in contact with Third Point, adding that the fund felt it was best to get out now instead of risking a big loss.

This investor emphasized that there is still a chance that PDL finds a buyer at a price that will make the company -- and investors -- happy. But there is definitely less confidence in that outcome today than there was last month.

A hollow achievement for Swiss drug maker

Roche

: The FDA approved its long-acting anemia drug Micera Wednesday, but Roche can't launch the drug here. Recall that Roche lost to Amgen in a patent infringement case last month.

The FDA's approval of Mircera is good news, however, for

Affymax

(AFFY)

and its long-acting anemia drug Hematide. Drug regulators are willing to approve new anemia drugs despite all the recent discussion over safety concerns. As I've discussed before, Hematide phase III studies have started and the drug doesn't have the patent issues that stopped Mircera in its tracks.

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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