Rman, thought ou might want to take a look at this post from the NSTA thread. The guy got an ego and he overstates his case but he does make a few points. I am going tocheck out Fuisz.
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To: Stewart H. Whitman (21 )
From: Tom D Sep 21 1997 7:08PM EST
Reply #24 of 27
Thanks, Stewart, I'm happy to argue the bear's position on Anesta.
We both come out ahead when we engage in an adversarial approach to evaluating an investment. First, let me respond to the specifics in your thoughtful posting.
1) You are right, my price sales ratio is arbitrary. 3.5 turns out to be the ratio used in the huge majority of the Hambrecht and Quist and the Alex Brown institutional research reports when they try to value biotech companies. They also both use the 40% annual discount rate and usually a PE of 35. Clearly there are many biotech companies which deviate from this ratio. It is just a starting point. I prefer it because the price earnings ratio is not at all helpful in this stage of corporate development.
2) Earnings of $1.80 per share in 1999 on revenues of $30M and expenses of $12M would turn me into a bull on this stock. But, besides additional costs on Actiq and Fentanyl Oralet, there are developmental costs on the other five products which Anesta is still developing.
3) As to what the actual sales will be in 1999, I would be amazed if they can get $80M. My pessimism is due to the incipient impact of managed care on physician prescribing habits. There is going to be an enormous change in this area soon. Did you catch the front page article in the WSJ earlier this year about physician prescribing capitation? HMO's give physicians about $16 per member per month in advance and basically tell the doctors to "prescribe all you want to" for your patients but anything over $16 per month comes out of your pocket. Some MD's, end up owing over $5000 per year to the HMO's. Primary care physician pharmacy caps are the newest trend on the coasts, "coming soon to an HMO near you". The other thing is the egregious delays in HMO approval of coverage for new medicines--even medicines that are clinically cost-effective. United Health Care, for example, still won't cover: Lipitor (FDA approved 12/96), Zyban (approved 5/97) and others. I have detailed postings on the KOSP thread, posts #3 and #8 about this problem. This is a great time to be bearish on pharmaceuticals--there is so much overoptimism built into the valuations, and so little written about these trends.
4) The biggest reason to be pessimistic about NSTA is its competition. I don't know if you already downloaded the latest 10K filing edgar.sec.gov for Anesta. It is dated 3/31/97. Please examine Page 3 (of the document's internal pagination) the section entitled "Background". Now here is their survey of the drug delivery market, and there is not one word about flash dose technology. In fact, the technology is not mentioned at all in the 56 page filing! What is the big deal? Flash dose technology is only their biggest competition. A company like Fuisz could dominate every single market that Anesta has, and Anesta isn't even warning the investors. Fuisz has set its sights on bigger markets, for the time being. But litigious attornies such as Bill LeRach are going to have a field day when the price drops and he organizes the class-action shareholder lawsuit.
I have done consults on a lot of biotech business plans as a professional. These are for companies that are much earlier in their developmental cycles. I can only think of 1 or 2 plans that were worse, and we made those companies do their plans over.
If you think that flash dose technology is not a competitive problem for Anesta, let me suggest that you look into it a little more. I'd suggest checking out postings #110, 138, 164 and 177 on the FUSE thread. If you are still serious about a long-term long position in Anesta, please call IR at Fuisz and get an investor packet so you know what you are up against.
In general, Anesta is addressing small markets, or markets which have a lot of competition. I don't think they are well-chosen. For example,
1) OT-nicotine. The world already has four nicotine patches, nasal spray and gum. Then there is Zyban, which is more effective than all of the above, although there is some synergy. Good luck penetrating that market.
2) OT-dihydroergotamine. We already have generically-priced ergot preparations in clinincal use. Physicians tend not to use them because there is too much risk of hypertension, and because there are so many other useful, safer drugs. Imitrex will be available next month in a nasal spray dose. There are several other me-too drugs on the way. And, yes, Fuisz is working on a flash-dose imitrex variant.
3) OT-fentanyl. Fuisz has more than one flash dose potent analgesic under development.
IMHO, the only drugs that are of potential significant interest to clinicians are Actiq, OT-etomidate (which is in early Phase 2, and only for a niche market with entrenched competition), and the preclinical OT-antiemetic. The rest of these are poorly chosen, and a terrible waste of shareholder money.
Let me suggest that you consider find a decent opportunity to take profits in Anesta and look at Fuisz, which has around 100 products in development and imho, likely to quadruple in the next 24 months.
Best Regards,
Tom D |
