OK, Folks,
My first swing at MCLS has come up with some answers for Rick's and Wilder's respective concerns of leverage and interest expense.
Taking Wilder's first. Earnings have been impacted by acquisitions, but they are cash flow positive despite their debt load. This likely stems from the fact that they've been in business for a while and have been able to generate some return from their medicinal chemistry services, their roots. Naturally, they have to execute and score a win or two in the next year, and if they didn't it might be time to bail. They do have some customers . . .
From the 10-K:
>>Our customers include pharmaceutical companies, biotechnology companies,
personal care companies, agricultural chemical companies and specialty chemical
manufacturers. Revenue from pharmaceutical companies accounted for 43%; revenue
from biotechnology companies accounted for 49% and revenue from other chemistry
related customers accounted for 8% of our aggregate revenue, including milestone
and intellectual property revenue, for the year ended December 31, 2000. Our ten
largest customers have accounted for approximately 67%, 86% and 89% of total
contract revenues for the years ended December 31, 2000, 1999 and 1998,
respectively. Contract revenue from our affiliates, Advanced Life Sciences and
Sarawak MediChem Pharmaceuticals, accounted for 11% and 6% of total contract
revenue, respectively, for the year ended December 31, 2000. Searle, Inc.
accounted for 11% of total contract revenue, and AstraZeneca Inc. accounted for
10% of total contract revenue, for the year ended December 31, 2000. For the
year ended December 31, 2000, contract revenue from our three largest customers
represented approximately 32% of total contract revenue.<<
While they burned through a good chunk of the IPO proceeds retiring debt & preferred, they are not yet desperate. Also form the 10-K:
>>We believe that the net proceeds from our initial public offering, together with
cash expected to be generated from operations and borrowings under the mortgage
loan, will be sufficient to fund our anticipated working capital needs and
capital expenditures, other than financing necessary to complete future
acquisitions, if any, for at least the next 18 months.<<
And one indeed might hope they're done with acquisitions for a while, unless they manage an accretive one.
Regarding leverage. They talk a little vaguely of royalties and milestones. So far these are from affiliates. Yes, MCLS is another closet hybrid tool/therapeutic company. They spun out Advanced Life Sciences for the latter. Products in preclinical to PI/II there and at Sarawak MediChem, ALS' JV with Malaysia.
From the 10-K:
>>Our role in developing the drug pipeline of our Advanced Life Sciences and
Sarawak MediChem Pharmaceuticals affiliates is an example of the benefits of our
strategic drug development program. Advanced Life Sciences and Sarawak MediChem
Pharmaceuticals do not have a scientific staff and have relied upon our drug
discovery and development services, platform technologies and project management
services to develop their promising drug compounds. Our work provides valuable
experience and credibility and we intend to aggressively market our drug
development capabilities to third-party customers in order to generate
incremental service revenues, enhance our market reputation and create
opportunities to obtain milestone and royalty revenues.<<
Along with the next snip from the 10-K, a look at the income statement fleshes out the revenue stream picture.
>>To realize future milestone and royalty payments we must achieve specific
contractual objectives or our customers must generate revenues from drug
products developed in part by using our proprietary services and technologies.
During the years ended December 31, 2000 and 1999, we realized $1.4 million and
$1.8 million of milestone and intellectual property revenue, respectively. All
but one of the engagements that resulted in milestone payments or royalties has
been with our affiliate Advanced Life Sciences. Our present strategy, however,
emphasizes seeking future milestone and royalty arrangements to increase our
overall profitability and we currently have arrangements with unaffiliated
customers that present opportunities for milestone and royalty revenues.<<
And what exactly are the therapeutic affiliates up to? This actually amounts to a fairly deep, if quite early, pipeline. Though the JV hopes to be on the market by the end of next year.
advancedlifesciences.com
sarawak-medichem.com
Don't know if this qualifies as sufficient leverage.
At these prices, Trickle can't resist taking a flier on MCLS tomorrow, nibbling 1000 shares. Pending conference call and further input from TrickleMavens, another 1000 thereafter. Another aspect is that they'd be a good munch candidate, IMO.
Cheers, Tuck |
