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Tickers in this Article: TTWO, ITMN, VLTS

Take-Two Interactive Software Inc (TTWO) emerges as an unlikely winner this week. The share price for the video game developer soared from $17.00 to $20.27 (or a gain of 19.6%). However, the news behind the jump could be an indication that the game could be over for some of the current members of management.

A group of dissident shareholders, who hold an ownership stake of over 45%, announced earlier this week that they are actively pursuing action that will replace the current nine members of the board with six members of their choice. Ultimately, the group, which includes SAC Capital Advisors and Oppenheimer Funds Inc, seeks to oust current CEO, Paul Eibeler, and potentially CFO, Karl Winters, for their lack of results obtained in boosting earnings.

As seen by the notable increase in share price after the announcement of the forthcoming activist action, it appears that the market is supporting the "coup". Many feel that this move may have been long overdue as the board should have found new managers that would implement actions that would benefit shareholders.

The impeding showdown will not be set into motion until the annual shareholder meeting on the 23rd. Both the market and investors are hoping that the new members of the management team will be able to turn the company around instead of adding to its problems; as the company is still reeling from the effects incurred by previous actions. For example, due to the options backdating scandal relating to Take-Two's founder and former CEO, Ryan Brant, the company will need to restate its financial statements from the past 10 years.


One notable loser this week is InterMune, Inc. (ITMN). Shares for the biopharmaceutical company dropped from $28.34 to $22.18 (or a decline of 22.9%) due to recent news regarding the status of the company's drug, Actimmune, which is currently being used to treat the progression of chronic osteopetrosis and chronic granulomatous disease. InterMune was engaging in clinical trials that would allow it market Actimmune for other treatments. However this week, InterMune had decided to pull the drug from further trials regard its role as an idiopathic pulmonary fibrosis treatment after it was revealed that it was showed not to be statistically significant for that purpose; as there was no difference in mortality between the placebo and the experimental group.

Not surprisingly, the investment community did not react to this news very well, as a number of analysts have simultaneously dropped their estimates for InterMune's target price as well as downgrading the buy rating on the stock. What happened with InterMune, Inc. is an example of the type of downside risk that can happen when biotech companies attempt to find alternative uses by using existing drugs in their pipeline. While the fallout from a negative result may not necessarily be as detrimental as a potential flagship drug failing a clinical trial (For example, in the summer of 2006, Valentis, Inc (VLTS) lost over 80% of its share value almost overnight when they announced that their highly anticipated treatment for peripheral arterial disease failed a FDA phase two clinical trial.), the market is not very forgiving for failure; since this means that the company will have lower projected revenues.

However, this does not mean that investors should immediately sell out their positions of a pharmaceutical stock whenever the underlying company decides to look for alternative usages for drug compounds. As anyone who ever took a biology and/or chemistry class can tell you, chemical/biological reactions can sometimes yield surprising results. For example, the Botulism toxin can be quite deadly if you ingest it. However, if it weren't for some creative application of small doses of the neurotoxin in select areas of the body, there certainly would not be any Botox for aging celebrities to remove wrinkles with.

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