<Yet, you feel compelled to respond to any and all posts that contain criticism of GUMM because you feel that comments by shorts could have a negative impact on GUMM's stock price.>
Not exactly. I feel compelled to respond to posts that I disagree with to offer an alternative point of view. It has very little to do with the stock price, because I have a high degree of confidence that it will trade higher. I definitely feel compelled to respond to outright lies that can easily be verified with a little research (not accusing you of this). I also rarely initiate a discussion on GUMM, so that kind of blows your "Dan is hyping" argument out the water. If I was hyping, wouldn't you expect to find me initiating posts all over the place?
Here is some market data for the top ten cough and cold products. This data was reported in the June 99 issue of Discount Merchandiser. The average retail price of each of these products is about $6 (my estimate). I calculated the estimated number of units sold based on this average price and inserted it between the [ ].
1. Private Label: $730.7 million [121.8]
2. Tylenol: $257.3 million [42.9]
3. Robitussen: $165.2 million [27.50]
4. Benadryl: $165.2 million [27.5]
5. Sudafed: $161.6 million [26.9]
6. NyQuil: $136.5 million [22.8]
7. Alka Seltzer: $119.6 million [20]
8. Dimetapp: $92.4 million [15.4]
9. Theraflu: $57.4 million [9.6]
10. Formula 44: $57.2 million [9.5]
Total Cough and Cold category: $2.391 billion [398.5]
I estimate that Gum Tech will sell about $75 million of Zicam this year. At an average wholesale cost of about $6.50, they will have to sell 11.5 million units. At an average retail cost of about $8.50, sales of Zicam at the retail level would be about $97.75 million. The point of this exercise, other to present market data, is to demonstrate that Zicam needs less volume to reach the number seven or eight spot in the top 10 because it has a higher average unit cost than the other products.
IMO, the demand for a cough and cold product that is far superior in efficacy to other products on the market will be relatively inelastic when compared to the elasticity of demand for competing products that only mask symptoms. The reason this is important is because I don't think that retailers will experience problems selling Zicam at the current price point, and I don't think Gum Tech will be under pressure to lower their cost. Gel Tech should be able to reduce their cost of goods sold even more than the already healthy 30% as volume increases. Therefore, I believe that the gross margin on Zicam will increase as volume increases, or Gum Tech would have some room to reduce the wholesale cost and maintain their margin where it is now.
Now, go back and look at the estimated number of units sold in the top ten list and decide if you think that Gel Tech can sell only 11.5 million units of Zicam worldwide. That's a drop in the bucket, IMO, and I think that they will well exceed that next year (2001) with sales of about $100 million [15.4 million units]. You opined that Gum Tech will never sell enough to justify its current price. How much in earnings do you think that they need to justify the current $30 price? Would $1.00 or $1.50 in earnings per share be enough? Based on my model, the company would only have to sell about $30 million [4.6 million units] of Zicam to earn $1.00 per share, and they would have to sell about $45 million [6.9 million units] in Zicam to reach $1.50 per share. Do you really think that this isn't achievable? To put this in another light, sales are estimated to be $8 million in Q4 99, and I think that they will do about $20 million in Q1 00. This is with few international sales.
I'm not worried about competing Zicam-like products because the market is big enough for more than one, and Gel Tech can still make their numbers despite competition. However, I disagree with your characterization that Zicam is zinc mixed with a saline solution. A product such as this exists (Nasal Eeze) and it doesn't work on cold symptoms. The manufacturer doesn't even make claims that it reduces cold symptoms and they market it as a nasal moisturizer. A company might figure out a way to suspend the zinc in a solution that allows the zinc to remain in contact with the ICAM receptors long enough to be effective, but they will have to figure out how to do this without violating Gel Tech's patent. The main reason that Quigley's competitors can get around their licensing fee for zinc lozenges is because DSHEA allows zinc lozenges to be sold as dietary supplements. No such luck for companies that want to compete with Zicam because DSHEA doesn't apply to nasal gels and there's no corresponding loop hole.
Regards and good luck,
Dan |
