12:00 AM
 | 
Nov 13, 2006
 |  BioCentury  |  Finance

Ebb & Flow

In August 2005, when OSI (OSIP) announced plans to buy Eyetech for $935 million in cash and stock, the Street instantly concluded that OSIP had abandoned prospects for at least 20% revenue growth in order to buy a distressed asset - Macugen pegaptanib for age-related macular degeneration. OSIP's valuation fell 22% the day the deal was announced, to $1.6 billion from $2.1 billion.

Last week, OSIP said it would exit the eye business and out-license, partner or sell Macugen. The company originally had argued the eye business would generate positive cash flow in 2006-08. But Genentech (DNA) snatched that opportunity away with its Lucentis ranibizumab and Avastin bevacizumab.

Lucentis posted sales of $153 million in the third quarter - the drug's first full quarter on the market for AMD.

In its conference call, DNA noted that the VEGF inhibitor's gains had come "at the expense of other agents, most notably Macugen," while "off-label use of Avastin will remain a factor in the marketplace" for AMD drugs. Avastin's approved indications are for colorectal and non-small cell lung cancer (NSCLC).

"Sometimes, Wall Street knows what it's talking about," said Evan McCulloch of Franklin Templeton. "In its first quarter post-launch Lucentis' sales were more than Macugen at its peak."

The upshot is that third quarter Macugen sales were down 85% to $9 million versus the same period last year.

Now, OSIP is left to ponder what it would be worth were it not for the Eyetech deal. Prior to announcing the deal on Aug. 22, 2005, OSIP was trading at $40.77. The stock closed last Friday at $36.43.

If OSIP merely mirrored the 9% rise in the BioCentury 100 Index in the same period, it would be trading at about $44. Analysts had been even more optimistic. Many price targets on OSIP had been north of $50, and at least one analyst had a $74 target (see "OSeye Chart").

In fact, the company's market cap of $2.1 billion last Friday exactly matches its valuation the day before OSIP announced its plans to buy Eyetech.

If OSIP is once again valued mainly off Tarceva revenues, the stock looks cheaper than it did last year. Pre-Eyetech, OSIP's valuation was 38x Tarceva's $54.9 million in revenues for the nine months ended Sept. 30, 2005. Now, the $2.1 billion valuation is only 18x Tarceva's $114.7 million in revenues for the nine months ended Sept. 30.

No blues with the Blues

The shift from Republican to Democratic control of Congress did not spook biotech investors, as the BioCentury 100 Index added 3% last week. Pharma investors had more worries, as the AMEX Pharma Index slipped 3% (see Cover Story).

Moreover, biotech investors had some negative news to chew on, including a regulatory setback for Adolor (ADLR). The company lost 44% of its valuation last week after it and partner GlaxoSmithKline(LSE:GSK; GSK) received an approvable letter from FDA for Entereg alvimopan to treat postoperative ileus (POI) focused on possible cardiovascular side effects (see "Entereg's Safety Surprise," A9).

On the clinical front, Cell Therapeutics (CTIC) suspended enrollment in the Phase III PIONEER trial of Xyotax paclitaxel poliglumex to look at differences in early cycle deaths between arms of the study.

CTIC said the suspension will delay an NDA submission to the first half of 2008 from the third quarter of 2007. The company said it's on track to submit an MAA in the first half of next year.

CTIC was down $0.18 (14%) to $1.48 last week (see B22).

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