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Biotech / Medical : ICOS Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Icebrg who wrote (1019)	12/22/2003 8:36:39 AM
From: rkrw	Read Replies (1) \| Respond to of 1139

Q&A in this weeks Barrons... A Bit Defensive Two GRT partners on death, insurance and Cialis' staying power By SANDRA WARD An Interview With Rudy Kluiber and Greg Fraser -- The doors of GRT Capital Partners opened in Boston in 2001, and it wasn't long before the team of three was turning in an impressive performance at the long-short hedge fund. Led by Rudy Kluiber -- the R in GRT -- who had made his mark as a small-cap value manager running State Street Research & Management's popular Aurora Fund, they racked up gains of 15% in the first four months of operation from September to December of that year. Last year the fund advanced 2%, compared with a 23.4% drop for the Standard & Poor's 500. This year the team has come up slightly short, mainly because the fund's short positions have been squeezed as speculative juices pushed poorer-quality stocks higher. GRT's portfolio is up 17% through November, compared with 20.27% for the S&P for the same period. Along with Greg Fraser and Tim Krochuk, former fund managers at Fidelity Investments who practiced a quantitative approach to investing, Kluiber manages $200 million for clients. We talked to Kluiber and Fraser recently about their current strategy. For why they're still playing defense and for some of their favorite out-of-favor companies, please read on. Q: How about a short idea? Fraser: ICOS. It has a market value of about $3 billion. In a venture with Eli Lilly, it is marketing a new drug -- Cialis -- for erectile dysfunction. It is competing against Levitra, from GlaxoSmithKline and Bayer, and Pfizer's Viagra, and is the third entrant in the market. The stock market seems to expect the drug to have incredible success. But if you look at the history of third entrants in a category, they often don't have tremendous success unless there is something clearly better about the drug. ICOS has had some recent disappointments in the pipeline. The remaining drugs in the pipeline are in the early stages. Also, ICOS' share of royalties will be relatively modest, even if the drug were to be successful. The economics to the company aren't as good as the market appears to be suggesting. Kluiber: One analyst estimates ICOS will post a loss of $1.50 a share in 2005, and the stock is in the low 40s. That's discounting an awful lot of good news. The company recently began marketing the drug in the U.S., and there could be some initial near-term excitement surrounding the stock. We believe that after the initial excitement dies, this drug won't be as profitable as some bulls think. Q: Isn't this market big enough that it can support another drug? Fraser: They can probably expand the market somewhat. But even if it is a $1 billion drug, it doesn't support the stock price or the market cap of the company. Q: Is there anything clearly better about ICOS' drug? Any advantage to using it? Fraser: The one advantage is it is a little longer-acting. Q: That's a big deal in that market, isn't it? How much longer-acting? Fraser: Viagra lasts for about four hours, Levitra lasts for four to five hours and Cialis lasts about 17 to 18 hours. Q: Whoa. Well, you might get a lot of women complaining at that point. Kluiber: You said that, not us. Q: What's the downside risk here? Fraser: Within the last 12 months, ICOS was a $15 stock. After the initial excitement over Cialis, we think it will settle down to the low 20s.