BY JOSEPH CHECKLER
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
fundâs position.
The dive in Telik came after the
company announced âextremely disappointingâ
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 didnât return several
calls seeking comment, was one of three
large institutional holders with a combined
55% of the companyâs 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 itâs 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.âs Tarceva.
But according to the short seller, Telcyta
wasnât sufficiently different from other
drugs and failed to impress during âsingle
agentâ 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 didnât appear that the drug would show
promise in increasing survival rates.
.
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
fundâs position.
The dive in Telik came after the
company announced âextremely disappointingâ
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 didnât return several
calls seeking comment, was one of three
large institutional holders with a combined
55% of the companyâs 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 itâs 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.âs Tarceva.
But according to the short seller, Telcyta
wasnât sufficiently different from other
drugs and failed to impress during âsingle
agentâ 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 didnât appear that the drug would show
promise in increasing survival rates.
.