I've been in the UK for the past month and missed all the excitement. I can't believe all the people on the thread now; I missed something like 80 postings. At any rate, my role on the thread has been to keep unbridled enthusiasm at a reasonable level. So, let me discuss some matters.
Earnings are not too hard to estimate for Pharmos. You just have to take company estimates for B&L sales, allow for money now owed to B&L, take into account the cost of raw material we provide to B&L and estimate the cost of running a 20 person company based on costs to date. The estimate I posted back in Nov. was for a per share loss of $.065 for '98, a profit of $.06 for '99 and profits of $.16, $.25 and $.38 for 2000, 2001 and 2002. These were based on a dilution of 20%
which we know now is much too low. The dilution will be some 33% more than I had projected so my estimates need to be reduced by that factor. In addition, Gad R., in an interview for the Globe was quoted as expecting a small loss in '99; so my estimate of +$.06 may have been a bit optimistic. Nonetheless, my numbers are probably not too far off. While these are decent profits for a small company, a 30 cent per share profit 5 years from now isn't all that exciting. Indeed, the value of the company was about $60M a few months ago and is now about $150M with all the new stock out. Quite a jump for events that were widely expected. The recent rise has discounted some of the future.
A second point is that Pharmos ended up having to go to Elliot Associates for the infusion they needed. From my perspective, I had hoped they would be able to be attractive to a longer term investor able to withstand the temptation to fool around with the stock. That they couldn't isn't a real positive in my eyes. We can expect a lot of creative market activity at this point. Short sales were up by 28% for the latest report and are now hovering right around historical highs.
In the past, whenever short sales got high, the price dropped like a rock at some point.
Another negative point is the absence of any significant insider buying. The 2000 share purchase by the new CFO would seem to be a negative sign as most people on this thread probably have much more stock than that.
People expecting very rapid penetration by B&L into a market that is not experiencing rapid growth are apt to be disappointed. Doctors make decisions about their prescriptions based on a variety of factors in addition to medical facets; such as tickets to the Super Bowl, etc.
Competitors don't like to lose market share if they can help it. It is much easier to get share in a fast growing market than carve it out of somebody else's hide.
The HU-211 development has much potential. Yet, it is rather early in the game. A drug such as this will take about $300M to commercialize and Pharmos is in no position to do much on its own. We keep hearing rumors about how good the drug is and how a major will be signing up soon. Yet, we've seen no "coin of the realm" in either case. Double blind studies are just that and no one knows how things are going until the study ends. It's not a positive sign when people connected with the study have access to results ahead of time. Fortunately, the comments are coming from outside the company and can be discounted.
There is one positive I want to mention and that is the credibility Pharmos now has in taking a drug candidate and getting it through the FDA and into the commercial world. This should enable them to mine the field in Israel for other promising molecules of interest. This is an important plus.
All in all, people expecting dramatic increases in price are apt to be disappointed and there is a likelihood of sharp fluctuations in the stock price. Yet, we now own a viable company. If the CFO can figure out how to keep money coming in without cranking out more stock and getting it into playful hands, we should do well over the longer term.
Good luck to all.
Arnie H |
