dow jones report
TORONTO -(Dow Jones)- After 12 consecutive quarters of revenue growth,
GenSci Regeneration Inc. (T.GNS) expects to be profitable in 2000.
"We're comfortable with the fact that we've been projected to be in the
black for the year as a whole," Peter Ludlum, chief financial officer of the
company, told Dow Jones.
A report by HSBC Securities in June 1999 forecast that GenSci would reach
C$52 million in revenues, with net earnings of C$1.6 million, in 2000. The
company had revenues of C$30.6 million in 1999. Ludlum said he is still
comfortable with that revenue projection, but the earnings estimate may be a
"little high."
In the first quarter of this year, the Mississuaga, Ont. biotechnology
company had C$9.7 million in revenues and a net loss of C$1.2 million, an
improvement from revenues of C$6.5 million and a loss of C$2.1 million a
year earlier. Ludlum expects strong sales in the third and fourth quarters
to drive the company towards meeting the HSBC estimates.
Concerns about operating expenses, particularly in the sales, general and
administrative category, have analyst Cameron Groome of National Bank
Financial Inc. offering a more conservative forecast. Groome projects 2000
revenues of C$46 million, and doesn't see the company reaching profitability
until the fourth quarter of 2001.
Analyst Questions Expense Control
"They've done a good job in building revenues, the frustration is getting
them to bring more of that to the bottom line," said Groome. "We've seen a
good track up in sales, gross margins are quite attractive, but the big
question is can they control the SG&A."
GenSci develops, makes and markets surgical implants, dubbed orthobiologics,
which are made from processed human donor tissue and used to encourage bone
regrowth after surgery.
Along with Groome's concerns about expenses, the other question looming over
GenSci is an ongoing legal battle with its largest competitor, Osteotech
Inc. (OSTE), the market leader for bio-implant products.
The litigation has seen many incarnations since Osteotech first took action
against GenSci in 1998. In this round, Osteotech is claiming patent
infringement by GenSci while GenSci has antitrust and tortious interference
suits pending against Osteotech. An October court date has GenSci hopeful
that the situation will be resolved by the end of the year, said James
DeMesa, GenSci's president and chief executive.
"We've lived under this cloud for so long it will be nice to have it
lifted," said DeMesa. "It should be noted that it's the only cloud we have.
Now that it's in the final stages, you can be sure we'll be doing even
better things once it's gone."
DeMesa sees the litigation as partly responsible for hindering strategic
alliances, acquisitions, and licensing agreements; delaying plans to list on
the Nasdaq stock market; and keeping GenSci's stock at an undervalued level.
The company is trading Friday at 1.58 in Toronto, well below both the
52-week high of 3.35 and the target set by HSBC for June 2000 of 3.65.
With a resolution to the lawsuit in sight, DeMesa has plans to list on the
Nasdaq within the next 12 months. "We've been on the road to the Nasdaq for
the last eight or nine months," he said. "We will continue the process, and
be aggressively pursuing that strategy the day after the lawsuit is
resolved." GenSci Moving To Internal Sales Force
DePuy AcroMed, a subsidiary of Johnson and Johnson (JNJ) and a sales
representative of GenSci Regeneration Inc. (T.GNS), reached an out-of-court
settlement with Osteotech Inc. (OSTE). As a result of the settlement, DePuy
AcroMed agreed to stop selling certain GenSci products by February 2001. The
impact of this settlement on GenSci is limited as GenSci was already moving
towards using a combination of independent sellers and its own sales force.
DeMesa said GenSci will continue a relationship with DePuy, but ultimately
he expects GenSci to handle all sales in-house.
While Groome acknowledges the company's success in increasing sales during a
difficult time, he is maintaining a hold recommendation, partly because of
the turbulence caused by switching sales forces and because of the
uncertainty about the litigation.
"I'm factoring in a bit of a bulge in SG&A as they set up distribution
arrangements independent of DePuy," Groome said. "I think GenSci is giving a
clear representation of the suit and I think it's likely they'll be
successful. Still, typically companies file lawsuits against each other and
both of them get wonked on the head for it."
DeMesa said GenSci is also negotiating several agreements to license or
acquire products and technologies, but the low stock price prevents it from
using its equity as currency. Restricted to cash deals until its share price
rises, GenSci raised C$15 million through a private placement in February,
money Ludlum said will be spent on a broad spectrum of products, as opposed
to a single large acquisition.
GenSci will use licensing or acquisitions to expand the products available
in its five business areas: tissue technology, orthobiologic accessories,
synthetic biomaterials, biomedium technologies, and growth factor
technologies. Seven of GenSci's eight products are tissue
technology-related, but the company expects to offer products in all
segments within five years.
GenSci's DynaGraft line accounts for close to 90% of sales, with the next
significant product release expected in synthetic biomaterials sometime in
the next 18 months.
The company also operates two other divisions, Montreal-based GenSci OCF
Inc., an orthobiological company in which GenSci acquired a 51% interest in
April, and Osteopharm Inc., an Oakville, Ont. pharmaceutical company.
In the third quarter, GenSci expects to sell up to 80% of Osteopharm, a
wholly-owned subsidiary, in order to focus more on its core orthobiological
business, DeMesa said.
Company Web site: gensciinc.com
-Paul Haavardsrud, Dow Jones Newswires: 416-306-2100
(Corrected 03:57 PM)
DePuy AcroMed, a subsidiary of Johnson and Johnson (JNJ) and a sales
representative of GenSci Regeneration Inc. (T.GNS), reached an out-of-court
settlement with Osteotech Inc. (OSTE). As a result of the settlement, DePuy
AcroMed agreed to stop selling certain GenSci products by February 2001. The
impact of this settlement on GenSci is limited as GenSci was already moving
towards using a combination of independent sellers and its own sales force.
(In a story published at 1:13 p.m. EDT (1713 GMT), it was incorrectly
reported that DePuy AcroMed was ordered by a court to stop selling certain
GenSci products.) |
