Dear Tuck: OK, Pru and Smith Barney downgraded one to hold, one to neutral. However read this analysis report issued today. JDN
Jan 27, 2000
Shares of Biochem Pharma Fall on Profit Concerns
Senior Analyst: Eric Singer (1/27/00)
On January 27th, Biochem Pharma (NASDAQ:BCHE - news) released financial results for its fourth quarter of fiscal 1999 that came in slightly ahead of Wall Street consensus expectations. But shares sold off sharply as investors questioned the quality of the earnings.
Q4 net income totaled $29.6 million, or $0.29 per share, $0.03 a head of consensus estimates. Full year profits of $95.5 million, or $0.91 per share trailed year earlier levels. 1999 results do not include one-time gains totaling $16.3 million from the sale of investments. Contract revenue was higher-than-expected, thanks to a milestone payment and higher than expected research and development funding from CliniChem, an off balance sheet R&D company. When backing out the CliniChem funding, Biochem reported cash earnings of $0.21 per share, slightly below estimates.
Worldwide sales of 3TC in the quarter rose 3.3% to $232.1 million. Biochem received roughly $29.7 million in royalties from partner GlaxoWellcome during the quarter. On a conference call with investors, Biochem reported that 3TC sales had been tracking strongly in the first two months of the fourth quarter, but weakened considerably in the final month of the quarter. Year-end inventory adjustments or revenue recognition issues relating to partner GlaxoWellcome could be the culprit. It does not appear as if the clinical utility of 3TC is coming into question, depressing sales. We expect a rebound in 3TC sales in the first quarter. Management has given guidance to expect a high-single digit growth rate for 3TC in fiscal 2000, in-line with expectations.
Lamivudine sales for the treatment of hepatitis B totaled $13.3 million for the quarter, with $11.5 million coming from the Asia/Pacific region. GlaxoWellcome has received regulatory approvals for lamivudine in the Philippines, Pakistan, New Zealand, Canada, the U.S., Hong Kong, China, Thailand, Europe, South Korea and Taiwan. To date, the product has been launched in the U.S., Canada, the Philippines, Hong Kong, South Korea and China. Key launches in Taiwan and Japan by the second quarter coupled with reimbursement in many geographies will fuel lamivudine sales in 2000.
Expenses, especially R&D spending, came in higher than expected. The R&D arm, CliniChem, increased spending on a new vaccine facility and costs associated with clinical trials. Wall Street is taking issue with the revenue recognition from CliniChem. While CliniChem funding is expected to run out by year's end, Biochem has ample opportunity to enter into partnerships to maintain its revenue stream. On the conference call, Biochem has also indicated that it is in talks with partners with regard to a long-term research funding agreement. No further details were given.
Biochem has an exciting late stage development pipeline. Troxacitabine, a cancer compound, is in Phase II trials and Biochem expects to file a NDA in 2001. With the potential for fast track approval, this drug can hit the market by 2002 if trials are successful. Biochem is also in Phase I trials for an HIV drug, dOTC that holds considerable promise. Development of this drug has been delayed as a result of toxicity issues, but clinical progress should resume by year-end. Biochem is also developing new vaccines and is in Phase II trials for BCH-3963 with partner Astra for pain.
We continue to be supporters of the Biochem story. While earnings were buffeted slightly by research funding, we expect strong product sales in fiscal 2000 coupled with potential new partners to fuel Biochem's share price. With Biochem shares giving up most of their recent strong gains, shares are compelling at current prices.
Analyst: Eric Singer Updated on 01/12/00 with BCHE at $26.00
Recommended on 12/11/99 at $20
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