Jim,
My response to the FDA/OXO recent events is to add money
to the long term.
Simply put, the FDA/J&J/NAZ combo is going to happen in
my view this year and is worth double digits ($10) with real
potential for some higher value ($20+ cdn?).
Also in the long term, the sales/return profile looks very
strong as long as the upfront funds are handled with some
moderation.
That is, 25-35 million Cdn can take DMX through an active
2 year period without requirements for outside funding and
before that time the increasing repeat prescriptions could
grow to a materially positive cash flow. Upfront cash & the
cash now on hand takes the company some 30+ months including
reasonable expense growth.
Its easy to do a very quick analysis to illustrate what sort
of numbers this will take:
Assume a 33% direct cost-of-sales.
Sales 18 million
COS 6 million
GP 12 million
EXP 12 million (based on latest quarter times 4)
NPBT 0
So sales of $18 million Cdn plus currently takes DMX into
a positive cash flow.
Assuming the expenses grow by 50% to $4.5 million quarterly
by May 30, 2004 - the sales number becomes 27 million.
This very low number is important to me in that it sets
the ongoing concern marker where activity stops draining
wealth and begins adding to it.
That equates roughly to 1/2% of the impending current
market.
...
Straight forward, I know.
But does J&J have its eye on 1/2% of the NSAID market?
I would say not. I would think you couldn't begin to
play this game with less than the equivelant of 30-50
full time reps/mkt/mgmt/exec's, a $5 million literature/
materials budget, and at least $5 million or so for
advertising.
For J&J an $80 million sales target might look like this:
Rev 80
DMX 20 ($30 cdn)
Costs 15
NP 45 (net profit for division before internal allocations)
I'd be suprised if a proposal like that would fly and feel
reasonably confident that McNeil Healthcare will not enter
into this venture on NSAID's with an internal plan showing
3 year out sales of less than $300 million or so at a
minimum. While J&J has reams of subsidiaries, McNeil is
the second largest and I recall that their products tended
to be larger now branded names.
....
On the third front, I agree with you Jim that REK has taken
every reasonable step on the inspection. Including
non-guarantees, I have real confidence DMX will see its
way through to passing triggering the J&J deal. I feel
just as confident the final decisions will be made leading
to an approval triggering a market launch. This is based
on the numerous readings of FDA procedures and policies.
Despite others' doubts, I read it as nearly inevitable
from this point. Combined with this is sufficient cash
from past and future draws to ensure reaching these
milestones.
...
In summary I get an attractive picture:
DMX should be in good shape to pass the inspection.
Passing the inspection triggers the J&J deal.
The J&J cash should be sufficient to reach positive
cash flow.
It's difficult to fail labelling etc.
J&J likely is planning sales/sales effort well past DMX
positive cash flow.
That's how I see it. A reinspection doesn't really matter.
Wolf
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