From Standard & Poor's Equity ResearchTanox (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.