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overpaying for




Corixa slides as investors question Coulter deal

That's the question facing Corixa investors after the company offered $900 million in stock for the fellow West Coast biotech. Based on Monday's action in its shares, Corixa still has a lot of explaining to do: Corixa shares plunged 20% after the deal was announced, and recently traded down $7.75, or $18%, to $36.44. Coulter was up $2.81, or 9%, to $33.75.

Corixa's offer represented a 43% premium over Coulter's Friday closing price, leaving some analysts wondering if Corixa knows something about Coulter they don't. The offer gives just over one share of Corixa for each share in Coulter.

Valuing Bexxar

The question largely revolves around the value of Bexxar, Coulter's lead cancer drug, which endured a serious setback at the hands of the

Food and Drug Administration

last year. The agency kicked Coulter's Bexxar application back for mostly undisclosed reasons, but Coulter and development partner

SmithKline Beecham

(SBH) - Get Sally Beauty Holdings, Inc. Report

reapplied for FDA approval a month ago.

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Coulter shares underperforming Corixa's

Coulter will find out in a month whether the Bexxar application is accepted by regulators, but the deal won't be closed by then. Corixa says it has the right to walk away from the deal if the drug is rejected a second time, an event it clearly doesn't expect.

"We would obviously have to take a look at reasons for this unexpected outcome," says Steven Gillis, Corixa's CEO. "We'd see whether it's fatal, critical or easily fixable before walking away."

Some analysts are willing to give Gillis the benefit of the doubt because the company made a spate of acquisitions in 1999 that seemed cheap in hindsight. The biggest purchase was


, a novel cancer vaccine company, for $57.7 million in cash and stock, giving it a bigger stake into what could be a multibillion market for cancer vaccines in coming years. None have yet made it to the U.S. market, however, although both



and Corixa have melanoma vaccines on the market in Australia and Canada, respectively.

Speckled Hen

"It's a tough call to make, since Bexxar has a pretty spotted past," says Bill Tanner, analyst with

SG Cowen

, which has a buy on Corixa and does no underwriting for it. "But Gillis has demonstrated the ability to get a lot of these companies on the cheap. He tends not to overpay."

Analysts forecast that Bexxar could generate around $100 million in peak sales should it make it to market. The drug would probably have been the first drug in a novel class of radioactive monoclonal antibodies for non-Hodgkin's lymphoma to make it to market, but setbacks left Coulter neck-and-neck with

Idec Pharmaceuticals


in the approval process. Both Bexxar and Idec's Zevalin use radioactive isotopes to fight cancer, a new field, and could make it to market in mid-2001.

Analysts say the new market is big enough for many companies, but the first to market usually gets an advantage because it can develop the market with oncologists. And since Idec and its development partner



made a hit with Rituxan, a nonradioactive monoclonal antibody for lymphoma, analysts say Idec may have already made important strides in the potential billion-dollar plus market to treat this cancer of the lymph nodes.

"There's a lot of competition in hot antibodies for cancer, but if Idec is already firmly established, it's going to make it tough for Bexxar," says Stefan Loren, an analyst with

Legg Mason

who doesn't formally rate either stock. "Corixa is gambling on Bexxar, and they clearly have higher hopes for it than I do."

Still, there's more to Coulter than Bexxar, and Corixa sought to make that case this morning on a conference call. Gillis says Coulter and Corixa offer technology in cancer and other areas to contribute to drug development following Melacine, Corixa's lead drug for skin cancer that it hopes to launch in early 2002 with marketing partner




Gillis says both Corixa and Coulter have alliances with SmithKline that likely won't be affected by the deal, although he says SmithKline was only just told of the deal. Gillis might have to press the case to SmithKline, however, since that British company is in the process of merging with

Glaxo Wellcome


and biotech alliances are sometimes dropped in large pharmaceutical company mergers. Analysts say that's unlikely.

"Coulter has some pretty good intellectual property," says SG Cowen's Tanner. "There's more here than meets the eye."