Joe, my point about judgement was about the judgement of individuals on SI, and didn't have to do with AGPH or its management.
You've raised a good point. I worry about whether Peter Johnson is focusing too much on the stock price, and the bear raid by the shorts. Unless they need to raise equity capital, the stock price over the next year is much less material to the success of the company than how it executes. Same with the arguments put forth by the shorts ... if AGPH management is confident they're right, and the shorts are wrong, then the only thing that will prove that is events over the next year. Focusing on making those events happen is the key to changed perception and higher stock price.
I consider PJ to be a superb strategist and an excellent manager. This is a top flight company. They are executing well, and have an excellent pipeline going forward.
The reality that's slowly dawning on me is that to build a FIPCO, still a viable though difficult goal, takes more than one big product. It's highly unlikely that a company can bring their first drug to market while retaining enough of the rights to a) generate big bottom line numbers at the same time as b) putting in place a renewable pipeline that will generate those large, later year profits. AMGN was relatively unique in pulling it off ... not only once, but twice in hitting two grandslams in their first two at bats. BGEN couldn't. GNE and CHIR couldn't.
And AGPH couldn't do it. Their Viracept deals are reasonably attractive, but JT gets 50% of the profits, and Roche markets outside of NA.
But AGPH put in place all the pieces for a FIPCO, put a blockbuster on the market, and are executing, not flawlessly (inventory spike shows that), but close to it.
What they need to do with the first big product is to take the free cash flow from the rights they've retained and plow those into their pipeline. The pipeline will be their earnings engine. The way to get there is the cash flow they keep from Viracept.
That said, by inlicensing the three HIV products, and by continuing the development of their (mostly) early stage but extremely promising other programs, they're putting themselves in a position for tremendous earnings growth in the out years. And they don't need to go to the equity markets to get there. They don't need to sell off rights to corporate partners for cash to fund development ... they can strike deals when and if they make strategic sense. Its an enviable situation to be in.
The street hates surprises, hates complexity, hates confusion. AGPH has not proactively made the case for this strategy. Two problems result. It has the effect of requiring people who are fundamentally long on the company to figure it out as the strategy unfolds, vs. "here's what we're going to do" then "here's what we did", and the uncertainty and confusion create apparent risk (beyond what I consider the real, underlying risk). It also leaves them open to the charge that the inlicensing and the oncology division are reactions to the stock price decline and bear raid by the shorts, vs part of a sound, coherent business strategy - exactly the point made in thestreet article last week. Btw, I think the inlicensing wasn't a reaction ... they're sound business moves. The oncology division? I'm withholding until I learn more.
Peter
p.s., one other macro management concern. The street is very numbers focused, and hates surprises, unless they're upside surprises. Analysts and portfolio managers fly by instruments ... income statement, cash flows, balance sheet.
Part of the transition AGPH is going through from a conceptual, strategic story to an earnings story (and we're finding out that to adequately value the company we have to look at this as a transition over the next 12-24 months), is that the management, for better are worse, is going to need to in some respects manage to those numbers. That doesn't mean they can't invest heavily in strategic initiatives vs maximizing short term earnings, but it does mean that the street will be watching each line on the financial statements and are going to be looking for predictability, and will reward upside surprises, and punish downside surprises. |
