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EntreMed shares fall 25% over report


Shares of EntreMed Inc. fell more than 25 percent yesterday after analysts at investment bank Gerard Klauer Mattison recommended investors sell the stock, saying the company's "cash reserves are critically low."

The Rockville drug developer has "bleak" prospects for raising money now at terms favorable to shareholders, Gerard analysts Ivonne E. Marondel and Peter J. McDonald wrote in a report released yesterday.

The two downgraded the once high-flying stock from "neutral" to "sell." EntreMed's shares fell 63 cents, or 25.7 percent, to close at $1.82 on the Nasdaq stock market. The stock had traded as high as $51.81 in May 1998.

"I don't think they know what the prospects are like because they're not here," EntreMed Chief Executive Officer John W. Holaday said in response to the Gerard report. "I can't agree that the prospects are bleak."

The company, he said, continues "late-stage negotiations" aimed at selling rights to an EntreMed drug as a treatment for cancer. He declined to elaborate. Typically, such partnerships involve a larger company buying rights to a smaller company's drug in exchange for upfront cash and promised future payments.

EntreMed has raised cash at the last minute a number of times in its 11-year history. Now, the company must do so again.

Holaday acknowledged in an earnings conference call last month that the company had only enough cash "to continue to maintain its financial obligations into the fourth quarter."

It reported then that it had $11.4 million in cash and $3.4 million in working capital as of June 30.

Gerard's analysts said yesterday that EntreMed has $11 million in short-term liabilities and is burning through cash at a rate of $47 million annually, a number Holaday disputed as too high.

The company, he pointed out, laid off 30 employees, or 25 percent of its work force, in early August, among other cost-cutting steps.

EntreMed burst onto the national scene in May 1998, when a New York Times story quoted Nobel laureate James Watson suggesting that EntreMed drugs Angiostatin and Endostatin would "cure cancer."

Holaday has long complained that expectations for the drugs - as well as a third EntreMed drug, Panzem - have been too high.

The drugs promised a new way of treating cancer without toxic side effects. They aimed to painlessly block the growth of tumor-feeding blood vessels.

Though dozens of companies are now developing similar drugs, "several high-profile disappointments" in the testing of vascular-targeting drugs may suppress investor interest, the Gerard analysts said.

The recent disappointments include Avastin, a Genentech Inc. drug that didn't prevent cancer from progressing in relapsed breast cancer patients, and Iressa, an AstraZeneca PLC cancer drug that did not improve patient's survival when administered in combination with chemotherapy.

"Although EntreMed targets a different pathway, the results may put a 'chilling effect' on the whole area, possibly making a partnership difficult," McDonald said.

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