Sunday, August 28, 2005

on Eyetech/OSI

Eyetech (EYET) was bought out by OSI Pharmaceuticals (OSIP) recently at a substantial premium. I had mentioned Eyetech as a target twice - here and here. In both posts I mentioned that I wasn't buying yet due to insider selling and absence of insider buying. I was right in not buying at those points, though the later sharp pullbacks did make the shares a bargain. I also got the potential buyer, Pfizer, wrong.

The market has reacted very negatively to this deal, sending OSI shares down sharply. Part of the reason for this reaction is the high price paid. The other part is the possible strained relation with OSI's main partner, Genentech, whose Lucentis was the one that caused Eyetech shares to plunge a few weeks ago.

While the buyout price is high, I think OSI knows something that we don't. I am not going to guess what that could be. At this point the overreaction has definitely made OSI shares cheap. Whichever way the buyout turns out, success or failure, OSI stock now represents a bargain. Buy now, and you won't complain.

OSI itself now becomes an extremely attractive target for someone line Pfizer. I do not own OSI but would buy shares now if I could.


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