It seems to me that all this talk of shorting AGPH is irrelevant. Of the 250 large cap and biotech drug companies, virtually all of them are off since the end of February. That is, our "short experts" could have picked any one of these and had a 98% chance of being right. For the most part, shorting biotechs a year and a half ago, would have been a good bet as well.
On the other hand, the recent declines are not unique for this industry. There have been three major declines in the past year and a half, and the first two have been followed by general increases.
Foreward Looking (point 1): Though this could be temporary, the past couple of weeks have seen a mild broadening of the market, i.e. into small cap stocks. Secondly, 95% of the drug companies are up off their recent lows. Biotech indexes and mutual funds (e.g. Fidelity's saw a 20% decline in two months) have turned upward as well.
If you overlay AGPH's chart over a biotech index, considering how volitile AGPH is, you'll see that it is hit harder when the industry is down, but grows faster when the industry is up. Thus, if the industry has hit a near term bottom, the shorts would be expected to become more vocal so to maximize their profits. If a person is a "player", this shouldn't bother them. If they're LONG-LONG on AGPH (as I), it shouldn't bother them as well. If you're in the middle, you probably got hurt this past month and a half.
Foreward Looking (point 2): Pharmaceutical companies are conservative. When Peter says, "we'll file for approval in the next 6 months", he really means next month. When he says, "We'll be be approved by the end of Q1 1998 (Sept 97)", he means in the next 2 months. When he says 'we'll be profitable by _____'; guess what?
Foreward Looking (point 3): AGPH has an accumulated deficit of $115 million. With a gross margin of 55%, a 50-50 split with JT and an annual price of $5650, Viracept needs about $418 million in sales to put AGPH in the black. Viracept has already surpassed Inverase (Roche) in monthly sales. With no further growth, this translates into about $182 million in yearly sales. If Viracept grows like Inverase, this increases sales to $287 million. Thus, if AGPH is in the black by May 1998 depends on getting $131 million in European sales and/or other product introductions. Without these sales, it would have a deficit of about $15 million by the end of fiscal year 98 (June 99), but should be in the black by the second quarter of fiscal 99. Disclaimer: obviously these numbers are extrapolated from limited single month sales.
Foreward Looking (point 3a): Maybe point 3 is overly optimistic. If AGPH is just able to reduce their accumulated deficit by half or about $58 million, this would give them an EPS of $3.95, or one of the highest amoung large caps and biotechs.
Foreward Looking (point 4): I don't know if buying Alanex was a good move but it does give AGPH literally thousands of chemical entities to explore. I do know that the odds of AGPH being a 1-drug company have greatly decreased.
Foreward Looking (point 5): In balance, they have proven themselves in the scientific arena, but not yet in the business arena. The one thing that scares me is the 60 million shares still sitting in the company vault. They could expand too fast, start building manufacturing facilities too early or just sell them on the open market to take the volitility out of the stock price.
My wish list: I wish I would have bought a few puts a couple of months ago and I wish someone would correct the spelling in the title of this thread. |
