Message from John Metcalf on Nov 14 1996 1:41AM EST
I am not wary of the PR man. I've found no unsubstatiated nor overstated claims in
any company document. You can't say that about every biotech company.
////////////////////////////////
Mr. Smith is just doing his job, and his performance is in-line with the careful disclosure characteristic of CIST documents. I've talked with him ad nauseum, and the _only_ things that you're going to get from him are (1) stuff that the company has already made public, and (2) his own personal observations concerning trading. He's simply exhibiting characteristics of a pro at a time when his office has been asked to pick up the pace. I'm an old-time biotech investor, and I'm patient. I regard the silence as a reflection of justifiable confusion. Try to imagine what life is like for the President/COO/CFO (Bruce Galton) as he tries to interact with (1) Tufts Technology Transfer/Licensing, and (2) VCs, competitors, etc. that now see a company with cash and a marginal (but easy-to-expand) business. Very few of you will realize that Tech Licensing groups at most universities barely make enough to cover their own office...... Tufts, MIT and Wellesey must love CIST. Given their combined financial commitment to "get IMNX", they apparently have an effective, close working relationship.
Bob's point about competing with insiders...... I really love the 10-K with respect to outstanding exercisable and unexercisable incentive options. Galton's exercise at $0.19 to $0.37. He's not going to get rich by doing anything other that managing the company to healthy margins.
It's Grausz, one of two M.D. founders, that we need to worry about. However, his recent registration was for (from memory) less than 400K shares of 5.9 million shown on the 10-K. So, thus far, I don't see anything other than a small company with respected products (that need marketing exposure), a slug of cash coming, patents that apparently (IMO) put a lock on IL-1beta, on-going limited activities with diagnostics (IL-1) and therapeutics (IL-1 and PAI-2), existing research and/or supply agreements with the most respected of cytokine providers, well-greased attorneys, cash flow guaranteed for the next three years that should approximate $0.10/share, etc. I find it difficult to believe that management could turn its back on investment in development of the core business. The ace in the hole, IMO, is how easy it will be to recapture market share of IL-1beta-related reagents and to grow the OEM IL-1 business. This will, IMO, make it a cinch to increase penetrance for IL-6- and TNF-related assays and to rapidly grab market share for any products new developed through license or distribution agreements.
That is, it is very difficult for me to imagine competent management doing anything other than making CIST a going concern. And, thus far, it appears that management has not only been competent, it's been brilliant. There are too many companies out there that have not been respecting, for the reagents market, existing patents. CIST now has the court decisions and resources to scare the bejeezus out of them.
Dr. Pfau....... you are used to communicating with XOMA's IR group. If one reads through the XOMA thread here at SI, one sees many examples of information that XOMA has given you that was not public at the time. For instance, you recently state that they told you about insider purchases even though SEC disclosures had not yet been filed. I prefer Hal Smith's approach where everyone has access to the same info. Also, with respect to the value of patents assigned from IMNX..... yup, a good concern. However, based on IMNX and PeproTech, it appears that the existing CIST patents are sufficient for them to get securely in the face of competitors (and others) who would violate their claims, no?
My attitude toward CIST? I'm pleased to have the opportunity to invest, long-term. Given the new qualifications that are being discussed for NASDAQ registration, I'd try to use the bolus of cash to grow OEM and license revenues in the next 12 months to push the share price to at least $2/share. I'd also reverse split 3:1 to bring the company to approximately 9 million shares out and a market cap of about $54 million.
The nice part for me? I don't think it would take anything other than mediocre management to get there from here. Assume that revenues will come in at about $2 million for the next 12 months and that about $1 million is profit, easy. Several of you will look at eroding sales over the past few years and say "huh"? I know that my old boss has told me that PharMingen has recently switched to CIST IL-1, and I assume that other companies are knocking on CIST's door. OEM sales should explode this year, and customer-direct sales should pick up as (1) IL-1 advertising is able to focus on price/quality, and (2) the TNF- and IL-6-related reagents/kits are promoted. So, take about $0.04/share and add that to the $0.12/share "no brainer" for 11/15/96-11/15-97 that I've discussed previously, and assign a P/E of 20:1 (conservative, IMO, for a market growing at about 30%/year), and you come out with $3.20/share. Or..... take your pick and value it as a biotech (rather than as a reagents supplier)...... as a company with low-grade therapeutic/diagnostic stuff, a slug of cash coming to develop or acquire additional technology, and positive cash flow virtually guaranteed for four years. Some might prefer to value the company as a reagents company and add in a small "biotech premium", bringing a wild-eyed 18 month target to about $4/share. Settlement of the PeproTech litigation (and litigation to come?) would add to this figure. However, we can't count on management, within three years, replacing that ~$0.10/share cash flow that will be coming from IMNX with sales-related revenues. So, for me, I'll go with a more conservative 12 month target of $2/share. As indicated above and in previous posts, I really think that this is very easy to accomplish and that the potential is there for much greater return. I must be missing something. :-)
I just heard Bob and a few others fall out of their chair, so I'll let everyone digest this figure while I upload some (perhaps irrelevant) abstracts.
DISCLAIMER: I own shares of CIST, and I have a vested interest in their appreciation. I am not qualified to make recommendations, and my enthusiasm should not be construed as investment advice. Do your own homework.
Rick |
