Look what I just found from Cramer:
Biomatrix (BXM:NYSE) says it was baffled when its stock went down
Tuesday after "meeting" earnings expectations.
A company spokeswoman, speaking to Dow Jones News Service, complained:
"Truly it's confounding, because we hit every one of our targets for
the quarter."
The report went on to posit that those nefarious short-sellers were at
work in sending the stock down. It fell 6 1/4 to close at 23 Tuesday
and then dropped another 3 1/4 to 19 3/4 Wednesday. The story said:
"The direction of Biomatrix's stock has sometimes been dictated more by
investors with short positions than by the company's fundamentals."
Sadly, there's a fundamental flaw in that analysis. For one thing, two
hedge fund managers who can go short say that the stock is "hard to
borrow." In other words, so much stock is held by investors who won't
lend their stock or cannot (because, for instance, they hold it in cash
and not in marginable accounts) that short-sellers can't borrow it and
sell it, hoping to buy it back later at a lower price.
No, the selling Tuesday seemed to be due to old-fashioned longs not
staying that way. And the reason they may have preferred to dump
Biomatrix shares apparently was old-fashioned as well -- the company
will have a hard time meeting the sales expectations for its knee
injection painkiller in the second half of the year, according to three
hedge fund managers, one who's short the stock and two who have been
short but have covered their positions.
Rory Riggs, the company's president, didn't return a call seeking a
comment.
Sure, Biomatrix reported second-quarter product sales of $18.1 million
(slightly missing analysts' estimates of $18.5 to $18.7 million) and
earned 15 cents a share, excluding a special item, topping the First
Call consensus by one Lincoln. That was up from the first quarter's
$16.5 million in product sales and 13 cents a share.
But longs are looking for two things with the company's knee-pain
product, Synvisc: They want to see growth each quarter, and they want
to see Synvisc on a sendero luminoso, or a shining path, to reach the
estimates of end-user sales (sales to people like doctors who shoot up
their patients) of around $150 million this year.
In the second quarter, Synvisc had end-user sales of $24.3 million
domestically, according to American Home Products (AHP:NYSE). AHP's
drug division Wyeth-Ayerst sells Synvisc and pays Biomatrix, which
developed the injection. That's only up from $22.6 million in the first
quarter. (Wyeth also had $1.6 million in foreign sales, up from
$800,000 in the first quarter.) So Wyeth will need sales of around $50
million in the next two quarters to get to $150 million this year.
That's going to be particularly hard, because now Wyeth has a quarter's
worth of Synvisc inventory on hand, according to investors who listened
to the Biomatrix conference call Tuesday. A big portion of the
second-quarter sales to Wyeth went to building the inventory. That
building process is over. Now, Wyeth just has to sell more.
"It's hard to believe they'll do that," says a Boston-area health care
investor who has been short Biomatrix in the past but currently has no
position. "If Wyeth would've sold around $35 million, it wouldn't be
such a risk. But the quarter was essentially flat."
Meanwhile, the big bull on the stock, Wade King at BancBoston Robertson
Stephens, on Wednesday cut his 1999 revenue number to $77.2 million
from $87.8 million and reduced his 2000 revenue estimate to $113.1
million from $135.5 million. He also cut earnings estimates to 72 cents
a share this year, from 89 cents, and to $1.25 a share in 2000 from
$1.58. (Robbie Stephens hasn't performed underwriting for Biomatrix.)
All this means that Biomatrix, despite its two-day price decline, could
be still vulnerable.
Centocor (CNTO:Nasdaq) did it, saying Wednesday that it agreed to sell
to Johnson & Johnson (JNJ:NYSE). Among other things, it means that
TheStreet.com was wrong to be dismissive and to focus chiefly on
earnings.
So, J&J will pay a lot: around 10 times projected 1999 sales. Hey, that
means that Agouron sold itself on the cheap to Warner when it went at
around five times projected sales.
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