The problem with hating the shorts is that objective information which may mention the shorts case may been seen as biased. Stone and I do not agree about TSC and Jessie Eisinger at thestreet.com
I see his articles as a superb job of reporting. They give me information on what both sides are saying. In many other financial publications the author pretends to know something about the instruments, company or topic and presents a point of view.
Probably in violation of something I am going to paste Eisingers most recent, 7/30, TSC article here. If you think it is a damn lie, you have let the shorts damage your brain cells. <g> If you see it as balanced you obviously are neither short nor long. That is my disclosure.
Think about TSC as a great source of information. Free trial available and at under $70 it can't be beat for quality and quantity on a daily basis.
The bears contend
that the market
for such whooping
cough vaccines
isn't big enough
to sustain NVX,
even if ABT gets
a decent chunk of
the market.
Top Stories: North American Celebrates, While
the Bears Say Time To Put Up
By Jesse Eisinger
Senior Writer
7/30/98 6:59 PM ET
North American Vaccine (NVX:AMEX), bucking steep odds set by its critics,
finally got approval for its Certiva whooping-cough vaccine. Now the shorts say
it's time to put the bullish projections to the test.
The stock hit a high of 17 5/8 on the news, before settling back to 14 5/16, as
investors' initial euphoria wore off.
NVX's Certiva is a member of a new generation of "acellular" vaccines that have
replaced older, less effective whooping cough vaccines. Connaught, a division of
French drug company Rhone-Poulenc (RP:NYSE ADR), has a version that was
approved almost two years ago. Drugs by SmithKline Beecham (SBH:NYSE
ADR) and American Home Products' (AHP:NYSE) Lederle division are also
on the market.
Short-sellers have long contended that it was a sign of trouble that Certiva approval
had been delayed so long. The company filed for approval in September 1995. Of
the stock's 32.1 million shares outstanding, 3.8 million have been sold short, a
high percentage.
The crux of the shorts' argument is that NVX's partner, giant Abbott
Laboratories (ABT:NYSE), has no vaccine-selling experience and will have a
difficult time penetrating the market against three entrenched companies, all of
which are major vaccine powers.
These critics say that Certiva salespeople will be at a disadvantage in marketing
because the drug's efficacy was statistically lower than the others.' They also
contend that the market for such whooping-cough vaccines isn't big enough to
sustain NVX, even if ABT gets a decent chunk of the market.
Bulls say that Abbott will be able to parlay its power in pediatrics, from its giant
nutritional business, into sales.
One investor with a long position in the stock said that NVX's vaccine is safer,
saying that Connaught's and Lederle's vaccines have a small incidence of paralysis
and that the SBH vaccine causes leg-swelling. There have not been any head-to-head
studies of the vaccines. Bulls add that Abbott will be able to bundle its nutrition
business with the vaccine and sell the package to pediatricians.
The New York investor, who spoke on the condition of anonymity, said the
product will bring NVX $100 million in worldwide sales in two to three years. He
estimates the market at about $300 million in the U.S. The company cites this
figure and says that the Western Europe figure is also about $300 million. Others
have estimates of about $200 million in the U.S.
About to close the office for a celebration, Steven Keith, director of marketing and
sales for NVX, took a moment to talk with TSC. He said, "We expect to do quite
well in the marketplace," citing ABT's selling strengths and the safety profile of
Certiva. He declined to give market projections.
The bullish investor added that given NVX's strong pipeline of vaccines, and the
proof that it can bring a vaccine to market, he expects a takeover attempt by a
major company:
"This company has the most extensive pipeline of vaccines and a valuation of only
$600 million. Guess what: They won't be independent."
The shorts say, do the math. Mike Margolies of Avalon Research, an
independent research outfit that has had no banking relationship with NVX and has
a sell rating on the stock, says, "Abbott will have to strive to get 20% of the
market" -- not enough to sustain NVX.
According to Avalon, the Centers for Disease Control purchased 8 million
doses of whooping cough vaccines in 1997. There were 14 million doses sold
nationally last year. For a government buyer, each dose costs about $9.50,
according to NVX's Keith, and $16 to $18 in the private sphere.
One concern is that a newer generation of whooping-cough vaccines with an added
component for haemophilus B is making inroads into the market. Avalon
maintains they make up about 4 million doses annually, or 25% to 30% of the
market. Evan Sturza, of Sturza's Medical Research, another bear on NVX,
says that the portion is greater than 50% and growing.
NVX's vaccine doesn't have such a component and cannot compete against those
versions. But Keith argues that such vaccine shots only account for a portion of
one of the five doses in the whooping-cough vaccine regimen.
The upshot is that in a market of around $400 million to $600 million worldwide
for whooping cough vaccines, there is serious pricing pressure from the
governments, which dominate the buying. NVX will sell directly to the CDC, and
for private sector sales gets a royalty estimated at 15% to 20% of the total ABT
sales.
Sturza expects that NVX can get no more than 10% of the CDC contracts, worth
about $8 million to the company, he estimates. The next contract bidding is in
October.
According to Sturza, NVX is in financial trouble. "This is the beginning of the
end," he says, citing the company's poor balance sheet.
The company has about $88 million in debt, including $83 million of convertible
debt, according to CFO Larry Hineline. That costs about $5.5 million a year in
interest, he says. The company is also spending over $10 million a quarter,
estimates Sturza.
Cash at the end of the June quarter will be $24 million, he estimates, down from
$37 million in the U.S. The company has negative shareholder equity: In the
second quarter, it will have $42 million in negative shareholder equity, a hole on
the balance sheet $13 million deeper than it was in the first quarter.
Hineline says that investors should think of the debt as equity, since it can be
converted eventually. The conversion price is around 24 7/8. Says he: "I believe in
the fundamentals of the company." Shares closed Thursday at 14 5/16.
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