I haven't posted here for quite a while now. I've been reading the recent posts both here and on Yahoo, stating the possible technical reasons (shorts etc.) for the decline, and even posts with speculations that somebody knows that the results of the HU211 trial aren't good ones. After reading these posts (and noticing the increasing nervousness of posters) I decided someone has to put things in perspective (might as well be me). This post will be a bit long (sorry for that), but please bear with me.
To begin with, investing in stocks is never risk free, and one should always be ready to face a nasty correction. Investing in stocks, specially small-caps (and even more so, biotechs), should be done with a long term approach. I, for one, never expected making a quick buck off of PARS, and don't intend on selling my position for at least 2-3 years. Investing in stocks with a short term objective could be hazardous.
The market hasn't given PARS's shareholders many reasons to smile about lately, and the stock is far from its highs. Many people started wondering if something is wrong and if someone knows something they don't (this is probably why the group shaking the tree is successful, as they got many longs scared).
We must remember two things :
1. There are two emotions who drive the market - greed and fear.
2. In the long run reality always catches up.
Right now both emotions are working against PARS. We have CC who is very greedy, they want to make big bucks on their PARS deal, and for that they need the stock to go lower. This process (taking the stock lower), causes many longs (the weak hands) to get scared (good old fear) and throw in the towel. This makes more money for the shorts who get even more greedy, and well you get the picture. In order to stop this viscous circle we need news, which are, as we all know, just around the corner. That is why I'm sure we've just witnessed the worse part of this cycle last week, and we should start to see short covering very very soon.
I noticed people are speculating that somebody knows the phase II HU211 trial results are bad and is selling the stock - that is a load of bull !!! Firstly, I'm sure nobody still knows the results, and even if a few doctors involved in the trial think they know something, they won't be going to the market to make a few dollars. You must remember, Israel is very different from the US, people here tend to stay away from the markets (we had a big crash in '94, and since than most of the public's assets are in bonds and CD's).
Investors who are in for the long term, shouldn't pay attention to all this crap, and should try to reach decisions without involving emotions (an art few have mastered). Because, as we know reality always catches up, and NOTHING has changed in the PARS story in the last couple of months.
The only thing that has changed is the stock's price, which is now back where it was a year ago (pre-FDA approval era). This gives us long-term LONGS another great buying opportunity.
Since reality always catches up, let's take a look for a minute at the fundamentals, shall we...
Let's begin with the ophthalmic line, because that's where our current real value is (opposing to potential value), and besides that's what makes PARS so compelling, like other biotechs it has huge potential (HU211) but unlike most biotechs, we already have two approved drugs and we'll become profitable next year.
Lotemax and Alrex have been introduced to the US markets. Alrex has been moving along very nicely, and Lotemax is lagging a bit (nothing to really worry about, as it takes time introduce new drugs to a market). PARS should file for EU approvals in the near future, and by mid-late '99, we could see both Lotemax and Alrex launched in various EU countries.
On top of this PARS should start the phase III trial for LE-T very soon, and file an NDA by mid-late '99. By 2000, we will have Lotemax and Alrex entering their 3rd and 2nd year of sales in the US and EU respectively, and we should see sales of LE-T in the as well.
Very conservative estimates suggest that PARS will earn between $0.25 - $0.30 per share in 2000. Using a very low PE of 20 would give us a stock price of $5-$6. That's a return of more than 200% from todays levels, while completely discounting the value of HU211. Oh, and by the way, these sales will come in regardless the situation in Russia or the far-east.
So, we have quite a good and solid base to build from. We already have the base, and now we need to start building more floors on this solid base. The building blocks for the next floors is the HU211. It seems to me like one heck of a building block, one that could help us build quite a number of floors, and reach skyscraper size within 3 years.
There is more than one reason to believe the HU211 phase II trial's results are going to be quite good results, and they are :
1. The most important positive indicator has been available for quite some time, and it is the total death rate of 12%. That is much lower than other similar trials conducted in the past (about 20%), and much better than the 30% death rate with conventional treatment. You can't get a better indicator than this, but we have more positive indicators below.
2. The company already said it plans to present the numbers in several major conferences. I don't think they would have done this had they thought the numbers could be bad ones.
3. PARS just hired a major PR/IR firm - Ruder Finn. Ruder Finn is one of the leading IR/PR firms around, it focuses on the institutional market (a few institutions building a position sure could help the depressed stock), and it also has a lot of experience with in the pharmaceuticals sector. They will help spread the PARS story around.
Now, I don't think PARS would have hired a leading IR firm if it thought it is about to come out with bad news. This is an important indicator, as everyone knows an IR firm is only good when it has a good story to tell. If phase II figures are lousy, an IR firm won't do any good, and the best thing to do would be to cut costs and not the opposite.
4. Insiders have been buying more stock as of late. Haim Aviv just bought more shares last week, and I believe we'll see more buying from Bob Cook and others at the PARS management team.
I'm sure the HU211 numbers are good (the PARS management team sure is up beat about them), and we'll just have to wait until early October to see how good the numbers are.
To conclude, I believe PARS is the single best stock to own currently. At current prices the risks are minimal and the potential rewards are huge, I don't see any other stock out there that is more attractive than PARS at under $1.75.
Omer
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