Is this objective?
Summary evaluation for investors:
1. Management issues
- The length of time taken to bring the lead drug to
the major markets targeted years ago. Most of those
markets have not been achieved to date. Inexperience is
witnessed by the second phase III. IR is a low priority.
There are no major bio players involved. In house product
has been brought to market. Long term institutional
investments have relatively low turnover. Apparent ability
to generate interest is low.
2. Financial
- The company is at the start of a revenue stream for
Pennsaid in markets secured of 1 billion US; but, may be
numerous months from entering 2/3 of those markets. Cash
appears minimal with approximately 45 million available
in a dilutive agreement to place shares. There is no
debt. Tangible assets are a manufacturing/research
facility in Varennes and 2.4 million in notes receivable
from a private company. There is a 20% interest in a
private Swiss company valued several years ago at $150M
and a recently announced letter of intent to acquire the
remaining 80% for an undisclosed sum.
3. Properties
Patent for DMSO deliver system involving topical application
with increased penetration properties. Pennsaid approval
or initial approval in Britain, the Carribean, Italy,
Austria, Finland, and Luxemburg. Requests for approval
in process in Canada and the US, and outstanding MRA
approvals in Germany, France, and 7 other EU countries.
A 20% interest in WF10, a potentially multi-application
drug for treatment of AIDS, cancer, hepatitis C, and other
auto-immune indications. The AIDS application has
completed phase III. Cancer and HepC are in clinical
trials. A study for a fungal application for DMSO was
successful in penetrating the 3 components of the human
nail. Ownership of mature state Dioptic Labs generating
declining revenue of approximately $900,000 annually.
License to sell WF10 in the Canadian market.
4. Outlook
Potential markets - Each product application mentioned
targets a multi billion dollar market. The lead product
Pennsaid market is estimated to be growing in low double
digits. Recently introduced competition to Pennsaid is
undergoing regulatory scrutiny for safety reasons. Further
approvals in the EU can be expected. The company stated
publicly it expects Canadian and US approvals for Pennsaid.
WF10 for AIDS may have a fast track FDA profile.
Revenue timing - British market launch is 7 months old
and estimated at $560 million Cdn. Penetration should
mature over the next 12 months; however, market revenue
and DMX revenue cannot be forecast at this time. Dioptic
Labs revenue is in slow decline. Upfront payment can be
expected from EU distribution partners for approved members
reasonably estimated in the low millions.
Cash managment - best estimates are minimal cash reserves.
Net cash needs are approximately 3 million quarterly
equating to approximately $18M in sales annually estimated
at a 66% GM. Estimates are uncertain but cash coverage
would occur at 45 million market sales based on a 40/60
revenue split - this is approximately 8% of the British
market for sizing purposes. Cash can reasonably be
expected from distribution partners prior to launch the
timing of which is uncertain, but, may be expected in
the 2002 fiscal year (May 31). An agreement with Acqua
Wellington for 8% discounted shares extends until January
2002 with approximately 44 million remaining. The exercise
of this agreement has a dilutive effect; but is a secure
source of cash. The intent to purchase OXO can be valued
in the 120 million Cdn range based on the cash paid for
20%. Current valuation is not possible. No details are
available as to expected financing.
Risk assessement - royalty reward is higher than average
due to the go-it-alone strategy. Delays have been incurred
apparently due to inexperience and possibly the absence of
a partner with experience. Sufficient market has been
secured to reasonably expect a higher shareprice due to
retained earnings based on single digit market penetration
in a normal biotech timeline. Potential buyout valuations
can reasonably be expected to be above current market price
(4.10) based on product/market portfolio. Management
milestones have been slow versus average timelines; but,
have now resulted in the first billion of servicable market.
As a result near term risk is focused on interim cash
management until those markets mature. Canada approval is
anticipated to the extent that infrastructure investments
are being made to service directly creating further near
term drain on cash. Production expansion is concurrently
being undertaken in anticipation of US approval creating
an additional drain on near term cash.
Overall assessement - cash is available to fund objectives
not related to OXO and weather the near term prior to
sufficient market revenue growth. This has a material
impact on interim shareprice but guarantees an ongoing
state until the 6 current markets mature and reveal the
revenue obtained. Penetration necessary is roughly
estimated at $1 shareprice per % achieved.
Additional approvals are estimated to be highly probable.
Securing the US market would have a profound impact on the
stock as would strong WF10 phase III results but they cannot
be quantified. |
