Monday, May 10, 1999
DJIA 11046.76 +15.17 (+0.14%) S&P 500 1345.08 +0.08 (+0.01%) Nasdaq 2519.75 +16.13 (+0.64%) Russell 2000 440.09 +3.98 (+0.91%) 30-Year Bond 92 9/32 +6/32 5.79 Yield

An Investment Opinion
by Warren Gump

Zonagen Loses its Luster

Shares of pharmaceutical developer Zonagen (Nasdaq: ZONA) lost about half their value today on news that the company expects the Food and Drug Administration (FDA) to issue a non-approvable letter for its erectile dysfunction drug Vasomax. The stock fell from its Friday close of $19 13/16 to $10 3/4. Hopes were high that the drug would be approved and launched in the U.S. this year, but CEO Joseph Podolski said in an interview with Bloomberg News that he didn't expect that to occur until 2000 at the earliest. Schering-Plough (NYSE: SGP), the pharmaceutical giant that has agreed to market Vasomax worldwide, was up $9/16 to $50 9/16 at mid-day.

According to a company press release, Zonagen and Schering-Plough decided to forego a June FDA Review Panel of Vasomax because it wants to wait and submit additional information from recent clinical trials. Last June, the companies announced data from trials showing that 35% to 45% of patients taking Vasomax successfully responded, compared to about 80% of Viagra patients in similar trials. Despite this lower success rate, Vasomax appeared to have less severe side effects. Viagra has been associated with isolated instances of cardiac death, heart attacks, and high blood pressure, whereas Vasomax simply caused a stuffy nose in 17% of trial patients. In a more recent study, Schering-Plough found that 69% of 2,000 patients responded to Vasomax. The companies hope that this study will help it gain an advantage if and when Vasomax comes onto the market in the U.S.

Today's move, and previous volatility in Zonagen's price, indicate the risks of hopping into a one-wonder drug company. Investors plop in and out of the stocks as incremental news is made available. The stocks soars when the good news appears, but they tank when bad news emerges. Investing in these types of companies without having any medical knowledge or insight is tricky. You have to have a stomach of steel to endure the roller coaster ride. You'll hit on a big winner every once in a while, but there will usually be many losers. For those more faint of heart, a better way to play the emergence of new drugs is a large, well diversified company. While the highs won't be as high, the lows want be as low. Today's movement in share price demonstrates how Schering-Plough's broad business base and pipeline insulate it from some disappointing news.


Embattled PC and enterprise computing firm Compaq (NYSE: CPQ) climbed $1 1/2 to $26 1/4 after announcing a new North American distributor alliance program and plans to trim its list of distributors -- cutting the number of destinations it ships to by 70% -- so it can "forecast and manage inventory levels, reduce transportation costs, focus channel resources, and increase customer demand generation activities."

Shares of Web portal operator Lycos Inc. (Nasdaq: LCOS) picked up $8 5/8 to $98 1/8 following reports that USA Networks (Nasdaq: USAI) is expected to walk away from its three-month bid for the company. The entertainment company has concluded that it can't win shareholder approval for the acquisition. Lycos' biggest shareholder, Internet investment firm CMGI (Nasdaq: CMGI), has been dead-set against the deal and has been seeking other bidders for the company, even considering buying Lycos outright. CMGI shares took $6 1/4 to $227 1/2 this morning.

Wireless communications provider Nextel Communications (Nasdaq: NXTL) shares moved ahead $1/2 to $36 7/8 following news of software giant Microsoft Corp.'s (Nasdaq: MSFT) plans to invest $600 million at $36 per share in the company. In exchange, Nextel will provide its more than 3 million customers with access to a customized set of Internet services offered through a co-branded version of the Microsoft's MSN portal.

Online services giant America Online (NYSE: AOL), which announced marketing agreements with five banks -- Bank of America (NYSE: BAC), Bank One (NYSE: ONE), Citigroup's (NYSE: C) Citibank, Union Bank of California, and Wells Fargo (NYSE: WFC) -- in connection with the relaunch of its banking center, deposited $5 13/16 to $124.

Teleglobe Inc. (NYSE: TGO) got $7/8 to $30 on news of plans to invest $5 billion over the next five years to build GlobeSystem, a globally integrated Internet, voice, data, and video network. The system will provide direct network access from 160 major cities worldwide. Teleglobe is working with Nortel Networks (NYSE: NT), among other vendors, to build the new system. Nortel, for its part, advanced $3 to $70 3/16 this morning, also announcing that it won a contract to install an optical backbone network in Europe for telecommunications services company COLT Telecom Group.

California sporting goods superstore company Sport Chalet Inc. (Nasdaq: SPCH) jumped up $1 3/4 to $6 7/8 after announcing the launch of its online store. The company's e-commerce activities will be run by Global Sports Interactive (Nasdaq: GSPT), which lost $8 13/16 to $24 5/16 this morning.

Network connectivity products maker Osicom Technologies (Nasdaq: FIBR) plugged in $2 to $9 13/16 after reporting Q1 revenues from its core U.S. operations of $19 million, 28% above last year's $14.8 million mark. Chairman and CEO Par Chadha said revenue growth was driven in large part by the popularity of its GigaMux dense wavelength division multiplexing optical networking product line, which expands the bandwidth of fiber optic networks.

Hearing health care and human communications company ReSound Corp. (Nasdaq: RSND) cleared $1 3/32 to $7 21/32 after agreeing to be bought by Denmark's GN Great Nordic for $8.00 per share in cash, about a 22% premium to Friday's closing price.

Organ transplant-related pharmaceutical developer SangStat (Nasdaq: SANG) gained $3 5/16 to $15 1/8 on news of Q1 losses of $0.60 per share, missing First Call's $0.52 loss estimate. The company said revenues rose 582% over year-ago levels and reported a multiyear co-promotion, distribution, and research agreement with Abbott Laboratories (NYSE: ABT) for SangCya cyclosporine capsules in the United States. The capsules, used to prevent graft rejection in transplant operations, are expected to launch early next year.

Casual apparel retailer Gap (NYSE: GPS) wrapped up $1 1/16 to $64 5/16 after Morgan Stanley Dean Witter upgraded the stock to "outperform" from "neutral" based on conservative market estimates, boosted advertising efforts, and expected strength at the company's Old Navy division. Analyst Sharon Pearson raised her full-year 1999 EPS estimate to $1.70 from $1.67 and her 2000 estimate to $2.05 from $2.00.


Bank holding company Republic New York Corp. (NYSE: RNB), the parent company of Republic National Bank of New York, fell $1 11/16 to $68 5/16 after Britain's HSBC Holdings agreed to acquire the company and its sister company, Safra Republic Holdings SA, for a total of $10.3 billion, or $72 a share, in cash. Republic's shares rose 14% on Friday on speculation that it would be acquired.

Private label casual apparel contract manufacturer Tarrant Apparel Group (Nasdaq: TAGS) was marked down $3 7/8 to $41 1/8 despite reporting Q1 EPS of $0.30 versus $0.20 a year ago, beating the Zacks mean estimate by a penny.

Honeywell Inc. (NYSE: HON) slid $4 7/16 to $99 9/16 after an analyst at Robert W. Baird lowered his rating on the building, aerospace, and industrial control systems designer to "market perform" from "market outperform."

Marketing software developer Exchange Applications (Nasdaq: EXAP) fell $4 3/4 to $23 1/4 after filing a 3-million share secondary offering with the Securities and Exchange Commission, which includes 2 million shares being sold by existing shareholders.

Voice and data conferencing technologies company Latitude Communications (Nasdaq: LATD) gave back $1 9/16 to $12 1/4 after rising 15% on Friday following its initial public offering of 3 million shares at a price of $12 per share.

Shares of gold producers continued to fall this morning after dropping Friday on word that the Bank of England plans to slowly sell nearly 60% of its gold reserves in a move to rebalance its portfolio and increase its foreign currency holdings. Newmont Mining (NYSE: NEM) lost $1 15/16 to $20 13/16, Barrick Gold (NYSE: ABX) fell $1 1/16 to $19 7/16, Homestake Mining Co. (NYSE: HM) slid $1/2 to $8 15/16, and Anglogold Ltd. (NYSE: AU) gave up $1 1/8 to $21 13/16.


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