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Prudential Cuts Tanox to Underweight


From Standard & Poor's Equity Research

Tanox (TNOX) shares fell after Prudential downgraded the stock to underweight from neutral.

Analyst Ron Ellis says the downgrade is based on valuation, higher expenses, and difficulty in identifying a commercial partner in HIV for the company's TNX-355 drug. Ellis says he's increasing his operating expense estimate, as at least two more trials will have to be done for TNX-355 approval and a sales and marketing infrastructure will need to be built.

As such, Ellis does not assume profitability until 2009, which is in line with guidance, but a year behind his previous estimate and the current consensus forecast. Along with the downgrade, he cuts his $16 price target to $15. He maintains 24 cents 2006 loss and 4 cents 2007 loss estimates.


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