Message from D. L. Renaud on Oct 30 1996 9:57PM EST
No offense, but I think you should review the report on VRGN at The Virtual
Investor site before you criticize it. It is very comprehensive and was independently
prepared.
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Independently prepared (even if you do say so yourself), perhaps, but without insight and derivative from company materials. OK, I went and read it.
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While I agree that there are negatives to the VRGN story, I haven't seen a company
yet without challenges to be addressed. In the case of VRGN, the positives and the
potential seem to far outweigh the negatives, including the 38 million shares
outstanding. Obviously, a large number of shares out is a hurdle, but it does not
necessarily preclude future shareholder value. If that were the case, I doubt that
Biogen would have just split their stock, increasing their shares out to 72 million.
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Biogen is able to split because they actually have products and profits. The large number of shares results from success. VRGN's large number of shares results from dilution to support an effort which has not yet entered formal clinicals in the U.S., europe or Japan. No, I do not consider an investigator's IND in Florida to be formal clinicals, particularly if the clinicals have been halted due to lack of conformity with GMP standards.
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Since you haven't checked out the company recently, you are not likely aware of the
numerous events in process that may have a dramatic effect on VRGN value in the
near future. Take a look. The deal they are working on with the American Red
Cross may be a blockbuster.
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The deal with the Red Cross, which, according to the Virtual Investor report, hasn't happened yet, is reflective that the company DOESN'T EVEN HAVE CONTROL OVER THEIR OWN PRODUCTION PROCESS. That's correct.... not only is it a commodity product, they are going to have to give away a portion of any future revenues to merely access the raw materials to produce such <commodity> product. The report indicates that they are not only yet another IFNalpha company, they are also yet another company that claims that they'll sell in non-Jpan asia, south america and the middle east. Such companies usually talk for awhile and then sort of quietly disappear, but...... four questions.... how much IFNalpha was sold in those geographies in the past year, and what percentage market penetration would $100 million in '98 represent? How are they going to achieve this percentage of penetration, and who is going to sell it for them? Saddham? "Oh, yeah, a sales force or distribution agreement..... *poof*, there goes some more shares". Let's say another ,oh, 5 million? Then, the report says that they've got 7.2 years of cash burn left with $19.5 million in the bank. Of course it also says that phase I trials will be initiated in europe in '97 and subsequently in the U.S. "Oh, yeah, how are they going to pay for the clinicals?...... *poof*, there goes some more shares". Let's say, oh, 15 million. "What? A product prepared from a heterogeneous population of <viral carrying> human donors doesn't stand a chance of receiving expedited approval, and the phase II and III studies would be every bit as demanding as were those for Berlex, Biogen et al.?...... poof, there goes some more shares". Let's say another, oh, 20 million. Add it up at the current share price (not a chance in hell), and you've got a market cap of about $340 million. Guess what?...... that isn't going to happen. What will happen is that the company will continue to float the dream for awhile, attracting naive investors (and cfps that are willing to write naive analyses), and the commodity product will sustain a marginal market cap as shares increase and share price goes down. It's a rational extension of trying to play the pharmaceutical game with a commodity product.
And on and on it goes. Yes, the report is exhaustive, but it's just dribbled out of stuff that the author was told by the company. It was prepared by someone who hasn't watched the "we haven't got the resources or even the raw materials to do clinicals in traditional countries, so we'll tell investors the old asia/south america line" companies come and go. These guys take buffy coat and prepare a commodity protein from it. The game in pharmaceuticals is played with proprietary products and decent margins. That giant sucking sound that you hear around VRGN is investor's dollars, going into fruitless dilution. If they were serious players in a $2 billion market, do you think that they'd be talking offshore offerings and that you'd be talking seven years of clinical burn on $19 million? No, pharmaceutical partners would be knocking down their door. Do you know how scared the Schering-Ploughs, Schering (Berlin)s, and Biogens of the world are of VRGN? Not in the least, with damn good reason, because THE BUSINESS PLAN STINKS.
A few final questions........ has the natural product been compared, head-to-head, against both the Berlex and the Biogen products, or has it only been tested against the bacterial product? How exhaustive has the testing been, period? How familiar are you with the FDA's "Points to Consider" documents which relate to biologicals prepared from human sources?
A word to the inexperienced biopharm investor..... if you're interested in a company with long-term promise, run, don't walk, from VRGN. There are *many* good biotech investments out there, and, thankfully, several are still available at market caps well below that at which this dog trades.
Disclaimer..... I am working from a report at the Virtual Investor page. I doubt it, but the company's business plan may actually be better than represented by VI.
One more comment..... the author of the VI report sets a price target for VRGN of $14/share by 10/97. This would give them a market cap, assuming no further dilution in the interim, of about $550 million, or roughly equivalent to that of Immunex or Cephalon, and $50-120 million *better* than that of Sepracor, Isis, Millenium, Regeneron or Incyte.
The author of the VI report went to a ton of trouble on the report. It is exhaustive. Unfortunately, it is not insightful.
Good luck in all of your investments.
Rick |
