re. ERGO, the co.'s IR called me back.
They haven't decided what strategic direction to take. She expects this to be in mid to late January, and that they will put out a news release at that time. She did mention appealing the FDA decision. This news release won't be any sooner than mid January. (I was sure to get this info about the dates of upcoming news, because if the stock bounces back before then, I want to be able to get out before any news.) She says she wants to get that news to the shareholders who bought the stock at much higher prices so that they will know what the co. will do.
re. the preferred stock, it's good that Mark mentioned this, because I had overlooked it. There is one class of preferred. They were deferring their dividends, so these are a liability that appears in the 'shareholder's equity' part of the balance sheet. (I just haven't been in the habit of looking for liabilities in that part of the balance sheet ... I guess I learn something new every day.)
(Looking at the 12/31/97 balance sheet, it looks like the co. owes them $3 M dividends, and in the event of liquidation the preferred stock is worth about $8 M. So that's a total of $11 M that the common stockholders wouldn't get. So if you subtract that from the $37 M cash, you get $26 M net cash for the common stock, which is $1.81 per share, so it looks like the stock is trading at 55% of net cash for common stock, which isn't as good as the 1/3 cash that Dale originally mentioned, but it is still a substantial discount. Just to be sure, I asked IR to verify that the stock is trading below cash, and she said yes.)
more re. the preferred: the holders can't redeem their shares or do much of anything else except hope to get their dividends. The co. IR told me that they have 'set aside' part of their cash balance for the preferred dividend liability (I suppose this is an informal escrow that doesn't appear on the balance sheet as a restriction on the cash.)
re. cash burn, she wouldn't make any forward looking statements because it is undetermined what direction the co. will take, but she said that they are now down to 20 employees, vs. 65-70 in 1997. Also in 1997 they had more clinical trials going on, and right now they are wrapping up their only other trial, a phase II trial for obesity. She said that back in 1995, the co. decided to put the diabetes trial (the one that didn't succeed recently) as a higher priority than the obsesity trial.
my comment on cash burn: the co. is probably only worth its net cash now less its future cash burn. In 1997 they were burning $15 M per year, so it appears to me that they are now down to maybe $ 4 M per year. The $26 M net cash would then last them 6 years. Or looking at it another way, the cash will be down to the present stock value 3 years from now.
Looking over these cash figures, I think I will set a limit order to sell below the $1.50 level that Dale mentioned. Maybe $1.25. |
