5 Stocks Down on Wednesday

by: Alex Shadunsky

There were a number of losers on Wednesday, led by a biotech stock after it received disappointing news from the FDA.

Transcept Pharma (TSPT) topped the list of losers as the stock price dropped by 42% to $4.94. Management announced that it expects to receive a Complete Response Letter from the FDA regarding the resubmitted New Drug Application (NDA) for Intermezzo (zolpidem tartrate sublingual tablet) on or before July 14, the PDUFA date assigned by the FDA for completion of the Intermezzo NDA review.

This update from Transcept is based on a teleconference with the FDA during which the FDA expressed continued concerns about the safety profile of Intermezzo based on information in the resubmitted NDA. Until Transcept receives the anticipated Complete Response Letter, the company has limited information as to the full extent of FDA concerns. After the Complete Response Letter is received, Transcept will announce additional information on the content of the letter and the company's plans for the future regulatory development of Intermezzo.

Biolase Technology (BLTI) dropped 8% to $4.05 after the company announced disappointing preliminary Q2 results. The company said that the it expects to report net revenue of approximately $12.0 million, up 104% y/y but short of analyst estimates of over $14 million. Approximately $2 million of orders received in the second quarter were unable to be shipped by June 30, primarily due to the timing of a significant change order placed by Henry Schein and the resulting last minute delays of critical components. Excluding royalties of $375,000 and $1.1 million in the second quarter of 2011 and 2010, respectively, this represents an increase of $6.8 million, or 142%, period over period.

Biolase originally planned its second quarter production and organized its supply chain accordingly, anticipating that it would continue to produce iLase systems in order to fulfill the final $3 million of the $9 million of purchase orders from Schein with the iLase system. This prepaid purchase order gives Schein certain rights and priority of delivery. Some critical components have long lead times and require orders to be placed months in advance. Schein informed the company that it was changing its order from iLase systems to a combination of the Waterlase iPlus and, to a lesser extent, the ezlase, on April 28, well after the start of the second quarter.

ITG (NYSE:ITG) tumbled 14% after issuing weak Q2 guidance and announcing cost cuts. The company announced a cost reduction plan to improve margins and enhance shareholder returns in the face of continued weakness in institutional equity trading volumes in the U.S. and Europe. The cost reduction plan is primarily focused on employment, consulting, and infrastructure costs in the U.S. and Europe. This plan is expected to generate pre-tax cost savings in 2012 of more than $20 million, or approximately $0.30 per diluted share after taxes. The cost savings will begin to take effect during the third quarter of 2011. ITG will incur pre-tax charges associated with this plan estimated at between $16 million and $18 million, or between $0.23 and $0.26 per diluted share after taxes, in the second quarter of 2011.

ITG also announced plans to record a second quarter 2011 non-cash goodwill impairment charge in its U.S. reporting unit estimated at between $210 million and $230 million, or between $4.50 and $5.00 per diluted share after taxes. The impairment was driven by weak institutional equity trading volumes and the decline in industry market multiples. This non-cash charge brings ITG's book value more in line with its market capitalization and has no impact on debt covenants, cash flows, or normal day-to-day business operations.

The weak volumes and pressure on revenue capture due to product and client mix shifts continue to weigh on ITG's results. ITG expects a U.S. GAAP loss per diluted share for the second quarter of 2011 of between $5.18 and $4.62, including the impact of the goodwill impairment charge, the cost reduction charge and expenses related to the acquisition and integration of Ross Smith Energy Group. Adjusted earnings per diluted share for the quarter, exclusive of these items, is expected to be between $0.12 and $0.15. Analysts were expecting EPS of $0.20.

Validus Holdings (NYSE:VR) fell 9% after it proposed to acquire Transatlantic Holdings (NYSE:TRH). Pursuant to the proposal, Transatlantic stockholders would receive 1.5564 Validus voting common shares in the merger and $8.00 in cash per share pursuant to a one-time special dividend from Transatlantic immediately prior to closing of the merger for each share of Transatlantic common stock they own. Based on yesterday’s closing prices, Validus’ proposal would provide total consideration of $55.95 per Transatlantic share, representing a 12.1% premium to the value of Transatlantic’s previously announced proposed acquisition by Allied World Assurance Company Holdings as of July 12. Validus’ proposal also represents a 27.1% premium to Transatlantic’s closing price on June 10, the last trading day prior to Transatlantic’s announcement of its proposed acquisition by Allied World, and a 14.1% premium to Transatlantic’s closing price as of July 12.

Tuesday Morning (NASDAQ:TUES) closed 8% lower after it reported weak Q4 revenues and cut its outlook. The company reported net sales for Q4 were $194.8 million compared to $200.8 million a year ago. Comparable store sales for the quarter ended June 30 decreased by 4.5% compared to the same period last year, which was comprised of a 5.4% decrease in traffic and a 0.9% increase in ticket.

Based upon the results of the fourth quarter, the company currently expects a loss per share for the fourth quarter of fiscal 2011 to be in the range of $0.03 to $0.05. Analysts expected a net income of $0.03 per share.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.