Eastbourne Bet On Telik goes south

Discussion in 'Wall St. News' started by traderob, Jan 2, 2007.

    The day after Christmas is supposed to
    be a day to return bad gifts. For one
    hedge fund, it was a day for bad returns.
    San Francisco-based Eastbourne
    Capital Management probably wishes
    it could have returned before Christmas
    its 13.2 million shares of cancer drug
    company Telik Inc., which lost 71% of
    their value on Dec. 26, carving more
    than $150 million from the value of the
    fund’s position.
    The dive in Telik came after the
    company announced “extremely disappointing”
    late-stage trial data for its cancer
    drug, Telcyta. The stock dove from
    $16.26 on Dec. 22 to $4.77 on Dec. 26,
    and it has dropped to $4.40 since.
    Eastbourne, whose chief investment
    officer Rick Barry didn’t return several
    calls seeking comment, was one of three
    large institutional holders with a combined
    55% of the company’s shares,
    along with mutual funds Oppenheimer
    Funds and Fidelity Investments.
    The devastating news and subsequent
    stock drop illustrate the risk for hedge
    funds of investing so much capital in
    small-cap biotech companies. It also
    shows that while such companies are not
    often the target of short sellers because it is
    hard to find shares to borrow, going short
    such a stock can be a huge win. Just ask the
    investors responsible for the 17.8 million
    shares of short interest, good for almost
    added that it’s never a good thing for
    cancer patients when a drug some
    thought was promising winds up failing.
    Eastbourne was making a bet that
    Telcyta, which was going through trials
    for lung and ovarian cancer, would have a
    positive outcome and take market share
    from such competitors as Genentech Inc.
    and OSI Pharmaceuticals Inc.’s Tarceva.
    But according to the short seller, Telcyta
    wasn’t sufficiently different from other
    drugs and failed to impress during “single
    agent” testing, the tests done with Telcyta
    as a singular treatment. He was also skeptical
    of the drug because he said that
    while a previous trial showed promise in
    short-term shrinking of ovarian tumors,
    it didn’t appear that the drug would show
    promise in increasing survival rates.