Contributing Writer

Sleepy biotech stock Targeted Genetics Corp., which hovered around $2 and traded an average of less than 15,000 shares daily in the third quarter, woke up this week.

On Monday, volume surged to more than 7 million shares, pushing the price up from $4.01 to a 52-week high of $6.85 before settling back at $5.87. The activity continued Tuesday and Wednesday as another 5.1 million shares in total changed hands. The stock (NASDAQ:TGEN) closed Wednesday at $5.39.

That isn't unusual in the particularly volatile biotech market, of course. Clinical data, FDA guidance or buyout talks all can send a stock skyward. But what's odd here is that Seattle-based Targeted Genetics issued no news or regulatory filings that could be attributed directly to the stock movement, and the company is not aware of any rumors driving the heavy trading.

"It's an [investor relations] nightmare to have the stock go up or down on this kind of volume with no news," said Targeted Genetics' Director of Communications Stacie Byars, who has fielded calls from analysts and investors all week about the stock pop.

Retail investors have drawn their own conclusions, some posting on blogs and message boards their speculation about a potential acquisition by Biogen Idec Inc. Earlier this month, Targeted Genetics restructured about $8.2 million worth of debt to the Cambridge, Mass.-based company, agreeing to pay $500,000 up front and $2 million in the future. The remaining about $5.6 million in debt was converted to 1 million shares of Targeted Genetics common stock, giving Biogen Idec a 19.9 percent stake in the company.

Biogen Idec spokespersons did not return calls, but Byars stated that Targeted Genetics "is not in discussions with Biogen Idec for a buyout."

Perhaps not, but the companies are strongly aligned. Their relationship began in 1995 as a gene therapy collaboration between Biogen Inc. and Genovo Inc., which Targeted Genetics acquired in 2000. At that time, Biogen took a 7 percent stake in Targeted Genetics and paid $8 million up front to have the company develop several gene therapy products over the next three years. It also received $3 million in milestones. That partnership ended in 2003, and in 2005 the companies restructured $10.7 million worth of loans to Targeted Genetics, allowing $2.5 million to be paid. (See BioWorld Today, Aug. 10, 2000.)

The most recent restructuring valued Biogen Idec's 1 million shares of Targeted Genetics at $5.65 per share, significantly higher than the stock price at the time, even though the news drove the stock from $2.30 to $4.08 over several days.

Another theory, and Byars threw her hat in this ring, is that Targeted Genetics time simply has arrived.

"Our position is that we've put out great announcements and made great progress over the past 12 to 18 months, and the market is recognizing it," Byars told BioWorld Today.

There's some validity to that. Nov. 13, Targeted Genetics presented data at the American College of Rheumatology meeting from a Phase I/II trial of tgAAC94 in inflammatory arthritis. The results indicated that tgAAC94 treatment might decrease the signs and symptoms of arthritis, including joint tenderness and swelling, in injected joints both with and without concurrent systemic TNF-alpha antagonist treatment. The gene therapy product tgAAC94 uses an adeno-associated virus vector to deliver a gene encoding an inhibitor of TNF-alpha.

Mark Monane, analyst at Needham & Co., agreed that the arthritis data "look very good" and also pointed to a gene therapy program in HIV in clinical trials as positives for the stock.

Monane, who does not cover Targeted Genetics, also put forth that "when shares like this" go up, it's usually "a confluence of factors" driving it, and pointed out that the company's market cap was very low to begin with.

The shares traded this week are mostly individual rather than block trades, indicating retail rather than institutional activity. Following the recent debt restructuring, 53 percent of Targeted Genetics' shares are held by retail investors, with 33 percent held by partners such as Biogen Idec, 5 percent held by insiders and just 9 percent held by institutions and venture capitalists.

It's possible that the recent momentum in the stock now is self-feeding, both among the retail investors reading blogs and message boards, and among institutional buyers for whom the price is now high enough to sit up and take notice.

"Getting above $5 can create a lot of momentum," Byars said. "People who wouldn't look at the stock before may see it now and say, Wow - these guys have a lot going on."

All decent theories, but for now, those watching the stock are in the same boat as Monane, who admitted he didn't "have a good reason why the stock is going up."

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