The trial-by-Wall Street of Centocor Inc. and Xoma Corp.continued on Wednesday, sending prices of both companies'stocks down.

Shearson Lehman analyst Teena Lerner on Wednesday issued ascathing analysis of both companies' gram-negative sepsistreatments, concluding that both had less than a 50-50 chanceof being approved at a Food and Drug Administration advisorycommittee meeting on Sept. 4.

Lerner, without changing her "neutral" rating on the stock,advised Centocor stockholders to sell and take profits now."We believe that the risk-reward ratio of this stock hasshifted to lots to lose and little to gain," she wrote. She addedthat with quarterly losses of $18 million and $125 million incash, Centocor can't afford a setback on Centoxin.

Lerner was less pessimistic about Xoma stock, which she saidalready reflects Wall Street skepticism about E5. It might slip10 percent to 20 percent in the short term, she said, but wouldbounce back. Nevertheless, she lowered her rating from "buy"to neutral and removed the stock from Shearson's selectedgrowth stock recommended list.

The analyst also said she expected to lower earnings per shareestimates for both companies after the Sept. 4 meeting.

Centocor (NASDAQ:CNTO) closed down $2.88 at $32.38 and Xoma(NASDAQ:XOMA) closed down $2.75 at $19.25.

Neither Centoxin nor E5 "adequately addresses the majormedical need that exists in the sepsis area," Lerner said. Ifeither product is approved, she expects narrow, rather thanbroad, labels and slow market development. She said Centoxinmight be approved for septic shock only, and E5 might getapproval for an indication based on reversal of major organfailures or mortality in patients with certain organ failures.

Lerner said her change of heart was based on testimony at thepatent infringement trial brought by Xoma against Centocor, bynegative letters on Centoxin to the editor in the July 25 issueof the New England Journal of Medicineand by discussions withclinicians that confirmed the views expressed in the NEJM.

Lerner said it is likely that the FDA and/or the advisorycommittee will recommend that Centocor conduct a secondclinical trial of Centoxin. It is also possible that Xoma mightget sent back for more clinicals.

Jacqueline Siegel, an analyst at Hambrecht & Quist and a long-time fan of Centoxin, said that even if Centoxin is approvedonly for septic shock, "that's a very large indication. It's verydangerous to let a patient go so far into septic shock that youcan't bring them back. So a physician is going to have to use itif he suspects shock."

On the other hand, Siegel said, if E5 is approved for organfailure, that would be a narrow indication.

-- Karen Bernstein BioWorld Staff

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