Message from harry zelatis on Nov 6 1996 10:40PM EST
Dam it! the market makers are having a field trip with us. Positive news came out,
the company WON$21 million. Such a price decline would indicate a loss with the
litigation, but dam it we WON.this stock on the news of just winning should have
climbed to $1.5.
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Give it time. If, as it appears, about 8-9 million of that 11 goes to CIST (after the share that goes to the universities and attorneys is subtracted) and (I think) 93% of the remaining 10 million goes to CIST over the next four years, there's no way this sucker isn't going to your target. They'll then have cash in the bank, addressing a cytokine market that is growing at 30%/year, approximately equal to its current market cap. Clearly, we need to confirm that this approximate amount is going to CIST.
Furthermore, I'd project minimal income ($2.8 million from their share of the Immunex settlement, $0.4 million from Techne/R&D Systems, and $0.4 million in interest) at $0.13 for next year. In addition, they should have little difficulty increasing market share in the next 12 months, the PeproTech settlement could come in, etc. A P/E of 10 is very conservative given the rate of growth of the the IL-1, TNF and IL-6 reagents market, totally discounting efforts to develop diagnostics and therapeutics. Value it as a biotech, or value it as a reagents business...... either way, IMO, we're going to your target and beyond. Shares are now rolling over to people who will want to see (and help) them take the Immunex settlement and build the business. Again, I want to emphasize that these guys produce quality reagents and market them somewhat effectively in mailings to members of the American Assn. of Immunologists and through advertising in scientific journals. They have marketing and research arrangements with the best of cytokine providers (Genzyme and R&D Systems). It appears to me that IL-1 and IL-6 revenues will ramp up fast, and that TNF revenues will grow as marketing efforts pick up, backed by the new cash. The figures above assume break-even for cytokine sales, and I feel that we'll be pleasantly surprised by significantly better than break-even. Depends on how they use the money, however.
Patents have long been the realm of diagnostics/therapeutics, while often being "circumvented" by reagents companies (not all of them!). The assumption was that companies would not go after the little guy, but Cistron sees that IL-1 will markedly enhance business for OEM customers. Not only will Cistron now command a greater market share, they will, over time, be able to increase margins by doing nothing other than passing resonable price increases on to OEM partners or by just plain refusing to OEM and forcing direct purchase from Cistron.
Most of these assays are not difficult to develop. You license a couple of antibodies that recognize different sites on the, say, IL-12 molecule, and voila!..... you've got a sandwich immunoassay for IL-12. Many people will buy a second assay from a company that they use to single source a given reagent, and IL-1 reagents and tests are big sellers. Piece of cake to rapidly build this business, folks! The number of molecules out there for non-exclusive license is impressive, and it's easy to go where others have gone previously. A tight <patent-enforced> reign on IL-1 provides a tremendous competitive advantage.
I just hope that all is legit, and I haven't seen anything to indicate otherwise. I receive their advertising, and they look like a class act to me. Just picture how fat that second quarter fiscal '97 report is going to be, and how those 3 million chunks are going to fatten the subsequent three second quarters. Relax?
Disclaimer: I own shares of CIST, and I have a vested interest in their appreciation. Do your own homework. I am not qualified to make recommendations, and biotech often involves above-average risk.
Rick |
