Drug Stocks Lose Ground In US; Vical Rallies

By Val Brickates Kennedy

Drug stocks followed the broader market lower early Thursday as investors fretted over whether Standard & Poors will lower the U.S. government's debt rating.

The Amex Pharmaceutical Index was down marginally at 252.99 and the Amex Biotechnology Index declined 1.4% to 624.85. The Dow Jones Industrial Average fell about 125 points to 8,297.

Vical Inc. (VICL) was a notable exception from the downward trend, with shares rallying 20% to $2.63.

The biotech company reported that it has developed a prototype vaccine against the H1N1 flu virus. Vical added that it has already begun testing the product on animals and could soon move on to human clinical trials if it receives adequate funding.

Vical, which specializes in novel vaccine technologies, has been developing the vaccine under a contract with the U.S. Navy.

Shares of Australian group Biota Holdings (BTA.AU) also were on a roll, up 15% to $3.00. Biota receives royalties on a leading flu-fighting agent, Relenza, which is marketed by GlaxoSmithKline PLC.(GSK)

On the downside, Cephalon Inc. shares (CEPH) were off 5% at $59.98.

Cephalon said early Thursday that it plans to offer 5 million shares at $60 a share and $435 million in aggregate principal of 2.5% convertible senior subordinated notes, due in 2014. Cephalon expects to raise about $709.5 million from the offering.

-By Val Brickates Kennedy; 415-439-6400; [e-mail]