Matrixx Woes Continue (MTXX)
biohealthinvestor.com
August 26, 2009 · Filed Under General
Matrixx Initiatives Inc. (NASDAQ: MTXX) gave an update at the Annual Meeting of Stockholders regarding the future of the company now that the issues have been brought up in its Zicam cold remedy. Those hoping that the matter was going to just clear itself up found another day of disappointment. While the company said its goal is to reverse this market withdrawal, we have yet to find many who believe this is coming back any time soon. The firm has said that it may cost the company $4 million to $5 million annually for Matrixx to defend itself against claims related to its Zicam Cold Remedy nasal products.
The company had a very bright future before this development came to light, but the June 16 FDA warning on its cold remedy’s loss of smell in some cases. The company also noted that it has taken steps to limit some of its legal expenses. While it said that the expense level might take a couple of quarters before litigation costs reach that $4 to $5 million range, the problem is that this issue is not going away by the sound of it. And any forward sales have effectively been removed from earnings models by investors.
Matrixx voluntarily pulled the products off of store shelves after the FDA warning letter, and the company said that other Zicam products weren’t affected by the FDA action. The company had previously maintained that these reports were misleading and unfounded. Matrixx’s response appears to be due mid-next week after an extension for it to respond and the company has maintained that it was surprised by return of this development and that the ultimate goal is to reverse the withdrawal and market ban.
It also appears that the FDA said back in June that a recent inspection showed that there were several hundred cases of serious side effects which had gone unreported. There was also a notion that the Zicam products had not been effective in cutting the time or severity of cold symptoms.
It has been a cold summer over at Matrixx. In June this one fell overnight to the tune of almost 70% down to $5.78 on the news. Shares fell under $5.00 before recovering to back above $6.00 yesterday. But today’s 9.7% drop took the stock back down to $5.59 on more than twice-normal trading volume. There are hardly any analysts here covering this because it is a small company, but the company is now expected to lose money as sales will be clipped substantially from 2008 and 2009 levels from before the incident.
As far as what the math is saying, it seems that the options traders are not putting a high value on a sudden return of this form of Zicam. The $10.00 strike-price calls for JAN-2010 went out at $0.55 X $0.75 today and a last trade was seen at $0.85. Those are still expensive xcompared to most options that bet on 85% stock gains by January 15, 2010, but it seems a long shot. It would not be unique to see a “Do-Over!” be declared by the FDA or by consumer groups, but it would be very rare.
The company’s most recent balance sheet had about $37.4 million on its books before considering liabilities, but now it faces plummeting revenues and higher legal expenses for quite some time. As we maintained in June, the future here is not a set one… but it is a very uncertain future.
JON C. OGG
August 26, 2009
Tags: MTXX |
