Management articulated a clear, achievable business plan at last night's annual meeting, one that included a few interesting surprises.
The meeting room was supposed to hold 50 people. More than that attended as a number of people were standing along the back of the room during the presentations. PARS people included Haim Aviv, (Chairman and CEO), Gad Riesenfeld (Pres and COO), Bob Cook (CFO), Gwyn Crosson (Dir. of Comm.), several corporate directors, Ellen Strahlman, VP of Coorporate Medical and Scientific Affairs at Bausch & Lomb (she originally encouraged BOL to partner with PARS), and Robert Ferris (head of Ruder Finn, the new IR firm). Proxy votes represented over 27 million shares, a considerable percentage. The meeting was run efficiently, with plenty of time given to shareholders to ask questions.
Dr. Aviv talked about a "walk, run, fly" philosophy for the company, which in practical terms devolves into simply expressed strategic moves. In itself, the business strategy has three components -
1) state-of-the-art drug design (like HU-211 and Tamoxifen)
2) development of other drugs that have reduced business risk because they involve the redesign and improvement of existing drugs (like the loteprednol etabonate family of compounds that begins with Lotemax)
3) a specific desire to bring products to market with the help of a bigger/stronger strategic partner (a la BOL)
About HU-211 --
No matter how many questions were asked upfront, sideways, around the back of the issue, they would not comment on the current unblinding of Phase II. Not a muscle moved in any of their faces during the interrogation as far as I could tell. Either they don't know or you should be sure never to play poker with any of these people.
We did get this much salient information, however.
From Dr. Aviv -- a reminder that Phase II by nature is meant to test the safety of a drug. As for efficacy, it is the nature of Phase II as well as a practical result from the small sample used that "we can only expect trends and not significant outcomes" from this Phase II unblinding. Second reminder: Phase II also serves as the "pilot" for Phase III.
After the formal meeting I had private conversation with him and took away the sense that we on the thread are spending too much time fixated on the mortality figures (kind of natural, since this was a number we could hang our hats on). But equally important will be the complex question of Disability Outcomes, the measurement of how much progress patients who survive their injuries make over the 3 month and 6 month period following treatment. The mortality figures are unquestionably good; the safety profile of the drug is already known to be excellent. What the paper to be delivered on Oct. 7th at the neurosurgeons' conference must also detail is the second set of scores. Unravelling this information is what is taking so long. The first clear statement about outcomes will be given at the conference.
Other than that -- Work continues on a stroke application for dexanabinol. Interestingly, PARS says it has also begun work on an oral form of HU-211. For what reason wasn't discussed, but I read this to mean the company is looking ahead to delivery systems for an MS application.
On the question of Finances
CFO Bob Cook is obviously doing an excellent job. He helped the company reduce the expense base so far in 1998 by $1.5 million, or 17% and readily admits his goal is that PARS become profitable as soon as possible.
When he looks to corporate needs over the next year and considers possible sources of funding, he ranks them in this order of priority:
1) net product revenues from Alrex & Lotemax
2) Non-equity-based financing (i.e., cash in from signing on with an HU-211 and/or Tamoxifen partner. He specified a hope that the company would get such a partner "within the next few months."
3) Shelf Registration, like the S-3 done this month for 3 million shares, which is meant for an institutional audience that will be long term investors. (I suppose this could also include shares for an HU-211 partner. BOL bought 2 million PARS).
4) Private placement of equity. This was his least favorite choice (ours too, of course!).
Corporate cash burn was estimated for the near-term at an annualized rate of $7.2 million - $7.8 million. PARS could achieve breakeven for eps if by Q4 1999 Lotemax has a 9% share and Alrex has a 12% share of their respective targeted US markets. The additional $2.6 million payments from BOL probably due late next year look to push the bottom line into the black by Q4 1999.
Outside PARS partners
I spoke privately with Bob Ferris from Ruder Finn and Ellen Strahlman from BOL.
Bob Ferris impressed me as a person very knowledgeable in his field with an excellent understanding of what is needed to market PARS to the investment community. In addition, he was quite knowledgeable about the way Israeli stocks on Wall Street trade , that is to say, they don't trade like typical US stocks. He will try, I believe, to help PARS massage its corporate identity into a more recognizeable niche -- that sound bite that helps investors grasp more quickly the potential of a company. Certainly events are expected over the next year that will give him plenty of ammunition to do so.
Ellen Strahlman, meanwhile, was extremely enthusiastic about the BOL/PARS partnership. She said doctors who had used Lotemax or Alrex for their patients were very pleased with results and she expects good performance from these drugs in the coming quarters. At some point (in the not too distant future, please!), the issue of the Alrex co-marketer should be settled.
Rough Calendar of Events
1998
Q3
- Alrex & Lotemax will probably report lower revenue than in Q2 when products were launched and the pipeline initially filled.
Q4
- management expressed strong hope based on current new prescription and repeat prescription figures that Alrex & Lotemax revenues would climb
October
-Dr. Aviv will deliver HU-211 paper at neurosurgical conference in Seattle (10/7)
-Dr. Aviv will speak at a Prime Minister's day in Israel (10/13 ?)
November
-Pharmos will be represented at a high-tech investors' conference in Tel Aviv sponsored by Robertson Stephens Evergreen, Ltd. (11/16 -17)
-Second paper on HU-211 delivered at a medical conference in New Orleans
December
- BOL expected to make application to sell Lotemax and Alrex in Europe for first or first two countries. Countries targeted initially for the likelihood that both drugs will get "special status," enabling a superior level of reimbursement. The rollout of the drugs will be on an ongoing basis over the next 2 years. European cut is 24% for PARS (versus 29% in the US). Interestingly, PARS said that after the first two years its agreement with BOL alters and it has the right to "co-market." I understood this to mean its portion of sales theoretically can move up to 50%.
1999
First quarter
-hoped for sign on of HU-211 strategic partner
-move to Phase I clinical trials in tamoxifen study
Mid-year
-new drug application for LE-T
-Phase III for HU-211 initiated
Second half
-probable $2.6 million payment to PARS by BOL if LE-T has received regulatory approval in the US and the company has gotten regulatory approval in certain markets outside the US for Lotemax and Alrex
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Personal conclusion: I came away from the meeting firmly convinced that management has an excellent, achievable business plan stretching out over the next 2 years and a very realistic business model that will carry them on beyond that point.
It was clear that management is reading the various threads about the company and keeping close contact with shareholders on a general basis. Several remarks made at the meeting seemed specifically to address issues we have discussed on SI an elsewhere. They are at this point, therefore, ideally responsive to shareholders.
Even with positive HU-211 news in October, Wall Street may just yawn at the stock for a while because of general market conditions, year-end tax selling, entrenched dislike for biotech, etc. HOWEVER, ONE YEAR FROM NOW THE PICTURE MAY BE ENTIRELY DIFFERENT. Many things are outside of any management's control, but if this one is able to bring to fruition most of its plans for 1999, we'll be owning stock in a company that has
- 3 strategic partners (BOL, HU-211 partner, Tamoxifen partner). If I had to rank events with most potential to raise the stock price, the signing of partners would be at the top.
- 3 drugs on the market bringing in revenue (the complete Lotemax "family')
- a revenue base for those drugs that is growing
- 2 additional drug platforms (HU-211 and Tamoxifen) that may bring in additional derivatives/applications for the future
That's one heck of an improvement from where the company was just 8 months ago. So, even though the ride may be occasionally bumpy, sometimes aggravating because we're wanting to hear the ca-ching on our portfolio cash registers, I think patient shareholders have got an excellent risk-reward ratio here.
-Ariella
P.S. Question to everybody who reads this post -- the niche audience that PARS needs to attract is investors who are knowledgeable about pharmaceuticals and biotechs, not folks searching for that 10-bagger in any industry simply because the stock is currently priced under $5. How about if we start a new thread under the pharmaceutical/ biotech section in SI? |
