The company took a charge in third quarter 1995 due to an
incorrect amount of chargebacks on their largest product--
DECONAMINE. DECONAMINE is prescription "turbo sudafed" indicated
for sinusitus and allerghic rhinitus. It is mostly prescribed
for the flu.
In particular, chargebacks relate to the amount of discounting
in relation to revenue associated to HMO business. The firm sells
the product for X, and then two months later the HMO chargebacks
the difference between the gross price and their particular contract
price (x-y).
BRADLEY purchased this product from BERLEX Laboratories (formerly
Pfizer) in December 1993. Along with the product came many different
HMO contracts associated with it--some were unfavorable, some were favorable--
but most were not active.
Due to BRADLEY's unparralled marketing finesse many unfavorable,
formerly BERLEX, contracts came on line. The chargebacks began to
come very fast in relation to revenue growth so management balked
at accepting some, often ludicrous, discounts. Throughout this time,
management raised their estimates on the chargeback rate.
At the same time, management was attempting to buy a factory (through
EDA bonds) and raise money for a big acquisition. The books
were audited for this and the chargeback issue came to rise.
Therefore, the firm had to take a charge to 3rd Quarter 1995
revenue to accomodate a new chargeback rate which was then
applied to the previous quarters (1994 Quarters also).
The bond financing and acquisition money fell through.
I expect a strong rebound in earnings and acquisition developments
in the short and long term.
Additionally, to ameliorate this problem management has renegotiated
all unfavorable contracts and buttressed their finance department.
Certain members of management also voluntarily gave back shares recieved from
escrow for meeting certain goals.
This is certainly no Chantal Pharm. (CHTL)--this team has the insight,
experience, and knowledge to forge ahead--profitably and knowledgebly. |
