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Company: Struthers, Inc.
Symbol: STRU
Exchange: OTC-BB
Current Price: $0.14
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An undervalued biotechnology company with a unique new embryo transfer
technology available to pork producers, who can apply genetic engineering
to help in eliminating diseases in their herds
STRU projects 40% profit margins in a US$4+ billion dollar industry; pro
formas suggest post-tax earnings of US$0.42 / share based on achieving a
10% market share
Struthers' competitors are three to five years behind in developing similar
technologies.
Porcine Embryo Transfer Now Available Worldwide
struthers.org
Company Profile
Struthers, Inc. ("STRU" on OTC-BB) of Charleston, South Carolina is a
biotechnology company focused on commercializing the unique technology
of Porcine Embryo Transplants (ET). Through Struthers' ET technology, pork
producers can apply genetic engineering to eliminating diseases in their
herds, while increasing profitability through production of leaner and
higher quality meats
The company's competitors are at least three years behind STRU in bringing
a comparable technology to market.
Struthers has also recently acquired complete and exclusive genetic rights
to pedigree swine herds in both the United States and Canada. Independent
tests have demonstrated that Struthers' hogs yield almost twice as much lean
meat as any other pork producer in the world. Struthers' pedigree hogs have
also won the Top Ham awards at the prestigious World Pork Expo.
Struthers ET technology addresses the needs of a very lucrative niche
market: swine herd replacements and genetic upgrades. Independent sources
estimate the value of this market to be on the order of US$2 to US$4 billion
on an annual basis; profit margins commonly run 40% to 50% of gross sales.
With its proven ET technology (over US$7 million invested to date in R & D),
STRU is in a position to successfully compete (and possibly dominate) in
this lucrative business. Struthers will be the first company in the world
to commercialize a process that will enable genetically selected embryos
from genetically-superior animals (which the company owns) to be transferred
worldwide.
The Struthers name has been synonymous with agricultural research since
the early 1980s, and are credited with having established the first herd in the
world to be certified free of PSS (Porcine Stress Syndrome). Through the
process of eliminating the PSS genetic mutation, significant increases in
the lean meat yield of the hogs is achieved.
Capital Structure & Trading Range (as of June 4, 1999)
Issued & Outstanding: ~ 270 million shares
Restricted Stock: ~ 140 million shares
Est'd Float: ~ 90 million shares
1999 Trading Range: US$0.01 (low) by US$0.60 (high)
Current Bid & Ask: US$0.25 by US$0.27
Last Trade (June 4, 1999): US$0.26
STRU is currently debt-free, and, with the successful completion of a 504D
Offering, the company has a strong working capital base.
Over the last couple of months, STRU's average daily trading volume has
been on the order of 4 to 8 million shares.
A Few Facts About the International Pork Industry
Most people are not aware that pork is the largest source of meat protein in
the world. In 1995, there was a worldwide inventory of approximately 760
million hogs, and pork sales exceeded US$184 billion.
Pork is definitely a growth industry. A significant amount of
international trade in pork has developed in recent years, led by the
United States, Canada and the European Union.
Maintaining the growing international pork trade requires complete
consumer confidence in the health of the hogs, while avoiding anything
resembling the "Mad Cow" scare in England a few years back. From the
producer standpoint, their continued success requires technology that allows
them to rapidly adapt to demand for specific types of quality pork products
(such as lean chops, loins and hams) at competitive prices.
In order to preserve the health of swine herds, severe restrictions have
been imposed on the international shipment of breeding stock to ensure that
live breeding animals are not carriers of hog diseases. As a result, the
gene pools in many countries have become more and more concentrated,
resulting in poorer quality animals in successive generations due to the
effects of inbreeding. To help pig farmers meet the ever-growing demand
for pork, the world needs new blood lines to add strength to existing herds.
The new bio-technology developed by Struthers is designed to address these
needs.
Struthers Revolutionary Embryo Transfer Technology
The basic concept of embryo transfers (ET) is the ability to remove an
embryo from a genetically superior animal and introduce it into a host
surrogate. The resulting offspring have all of the positive attributes of
the embryo supplier, while not retaining any of the negative characteristics
of the surrogate. With ET technology, pork producers have the ability to
change the genetic make-up of their herd in one generation (115 days) and
at a fraction of the cost of traditional methods.
Embryo transfers have been commonplace in the dairy and beef industries
for more than 20 years, without a single case of disease transmission being
linked to the commercial transfer of embryos. Now, with Struthers'
technological breakthrough, ET technology and genetic engineering can be
successfully applied to the pork industry.
So, how does it all work?
Well, along about the third day after conception, microscopic embryos float
into the sow's uterus. That tiny cluster of cells is protected by nature's
sphere of bio-security, which scientists call the zona pellucida (a
glycoprotein shell this is impermeable to all known bacterial and viruses).
Think of it as the shell of a chicken egg. The swine embryo will quite
literally hatch from this protective shell on the sixth or seventh day
following estrus.
It is this three day "window of opportunity" that Struthers exploits - the
time during which the company's ET technology can be successfully applied.
During this time period, and because of the protection afforded by the zona
pellucida, only those pathogens that can stick to the outside surface of the
embryo have a chance to be passed on. Virtually all pathogens can be
eliminated by a process of washing embryos after they have been flushed
from the donor, using proprietary procedures developed by Struthers and
endorsed by the International Embryo Transfer Society.
The end result is that by using Struthers ET procedure, pork producers can
totally change the genetic composition of their herds in a single
generation. By comparison, traditional breeding methods (using artificial
insemination) takes 15 generations (about 7 years) to fully-incorporate a
new genetic line into an existing herd. ET permits the use of existing
livestock as surrogates for the production of purebred Struthers stock, at a
fraction of the cost of importing live breeding stock. ET provides a
complete genetic package to the purchaser, resulting in rapid genetic
upgrading at the lowest possible cost and risk of disease transmission.
Over the past two years, Struthers has demonstrated the commercial and
technical viability of its ET technology in a series of beta tests
throughout North America and Europe. For example, a 1998 test in the
Czech Republic achieved an 85% pregnancy rate with an average litter size
of 10.7 hogs from embryos harvested from North American sows.
Pro Formas Indicate Strong Future Earnings for STRU Based on High Profit
Margins.
Struthers estimates that each year, about 3½% of the world's breeding
stock (roughly 40 million hogs) needs to be "genetically upgraded" - this
represents about 1.4 million hogs.
At present, it costs roughly US$3,000 to transport, quarantine and care for
each breeding animal shipped internationally. For 1.4 million hogs, that's
a US$4+ billion dollar annual market.
So, for each percentage point of the market captured by STRU (equivalent
to 14,000 animals per year), the company anticipates gross revenues of
US$42 million, a pre-tax profit of about US$18.9 million, and an estimated
after-tax profit of US$11.34 million (assuming a 40% effective tax rate).
Growing the business to a 10% worldwide market share (not out of the
question, given STRU's 3 to 5 year lead over its competitors) could return
after-tax earnings of 42 cents per share.
What P/E multiple is appropriate for a company like STRU?
That's a difficult question, as Struthers is the only company in the world
serving the porcine ET markets. A very conservative estimate might be on
the order of 5x to 8x in the first full year of operations, growing to a
more traditional 15x to 20x figure in subsequent years.
This is a proven technology, beta-tested throughout the world, and ready for
commercialization.
More importantly, Struthers is the only company commercializing this
revolutionary technology - STRU's competitors are at least three years
behind in getting competing technologies to market. The icing on the cake
is the fact that Struthers has acquired a world-class pedigree
great-grandfather swine herd in North America, from which it will supply
genetically-superior hog embryos to clients worldwide.
The advantages of ET technology are numerous, and should contribute to its
rapid acceptance by the international pork industry (while allowing
Struthers to gain control of this multi-billion dollar market). For pork
producers, the key advantages of ET technology include: an ability to
completely change the genetic composition of herds in a single generation,
the virtual elimination of diseases that commonly plague these animals, and
tremendous cost reductions compared to traditional artificial insemination
methods. ET is the only completely safe method for the exchange / sale of
swine genetics.
STRU is more than a genetics distribution house.
Struthers owns and manages one of the top-rated hog herds in North
America. The company offers both superior genetic lines as well as the only
proven safe method of transferring these genetics.
Among the many desirable world-class attributes of the Struthers herds are:
consistently high yields of choice cuts (hams, loins) of lean meat (> 60%
lean), reduced days to market (resulting in higher profits and reduced costs
to hog producers), and, larger, healthier hogs (currently, the various swine
diseases cost the pork industry up to 30% of its profits).
Embryo transfer technology will become the principal commercial vehicle for
genetic sales in the hog industry, and allow global producers to produce a
high-quality source of protein all the time. There's no magic involved
here - just science and hard work.
Struthers, Inc.
1 Carriage Lane, Building D, Suite G-E
Charleston, SC 29407
Phone: (843) 763 - 1755
Fax: (843) 763 - 1990
Toll-Free: (888) 400 - 8810
Website: struthers.org
For more information, please contact:
Investor Relations Toll-Free: (888) 400 - 8810
E-mail: struthersUSA@struthers.org
Disclaimer
Research Investment Group ("Research Investment Group") is not a
Registered Investment Advisor or a Broker / Dealer.
Research Investment Group has independently prepared this report for
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This electronic communication reflects opinions from Struthers, Inc.
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The information contained herein has been provided by the Company to
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information contained in this report is not intended to be a complete
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In order to be in full compliance with the Securities Act of 1933, Section
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Prior to Research Investment Group disseminating this information, the
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