Julio: You raised some intriguing questions. I'm gonna take a stab at it, but I'm no expert at these things, so beware -- the following analysis is probably more full of holes than a lump of swiss cheese. Maybe somebody else can build on it though.
OK...
First, Mr. Barnes' analysis ignored the revenues of CTM, but that's probably just as well since it's probably a small number and ignoring it adds a margin of safety to the analysis.
Next, I tried to figure the cost of the CTM acquisition:
(644,000 shares * $8.5) + $70,000 = $5,544,000
Finally, I pulled out my trusty financial calculator and plugged in the following variables:
PV = -$5,544,000 The cost of the CTM acquisition
N = 5 Assuming a 5 year period
I/Yr = 6.79% Interest rate on a 5-year Treasury
FV = 0
PMT = ??? ....... Annual royalty payment that would have a
present value equalling the acquisition cost
of CTM, assuming a discount rate of 6.79%
The calculator says this amount is $1,344,540
So the annual royalty payment, which should equal 7.5% of annual sales is $1,344,540. Which means that annual sales of OraTest would average about...$17,927,000. Since management believes the cost of the acquisition substanially outweighs the present value of the royalty payments avoided, perhaps we can round that number up to a nice even $20,000,000. (Incidentally, I've read the at-risk population in the U.S. is about 50 million. In light of that, $20M in average annual sales doesn't sound _too_ outlandish, does it?)
Now, assuming the foregoing calculation has any substance to it, I suppose one could apply it to Mr. Barnes computation:
($36M + $20M) / 30.5 shares = 1.84 sales per share
$8.5 / 1.84 = 4.62 price/sales
So? Is there a kernel of value in this analysis or is it _complete_ garbage. I'd like to hear some constructive criticism, but please, no flames. Hey, I'm an amateur!
If there is any merit to the analysis, how does the price/sales look? Isn't Amgen selling for about 10xsales? How about the synergies of the BDTC merger? The expected high profit margin on OraTest? The expected growth in the other parts of the ZILA/BDTC business other than OraTest? Mmmm, my brain is tired now, I'm gonna take a rest. Opinions? |
