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Non-Tech : Bill Wexler's Dog Pound -- Ignore unavailable to you. Want to Upgrade?

To: Mike M who wrote (3599)	9/16/1999 8:07:00 AM
From: DanZ	Read Replies (1) \| Respond to of 10293

Mike, <It begs the question why anybody would pay attention to them....particularly you.> The main reason that I post on this thread about GUMM is because I disagree with much of what is said by the bashers and think that other less vocal posters and lurkers are entitled to hear the other side of the story. In that regard, I would like to address some of Dale's comments from message 3594. If the article has been rejected by the NEJM (and it is beginning to look like that is probably the case), there will never be announcement to that effect. I don't see any evidence that the article has been rejected by the NEJM. I have been told by people familiar with the process, and who have actually published medical papers, that it isn't unusual for the Journal to review an article for 6 to 8 months before approving it. I agree that GumTech probably wouldn't issue a press release if the article is rejected by the NEJM if they didn't think it was material to shareholders. <Somebody is selling a lot of nicotine gum and I presume they are making money at it. Even a late comer to this market may be able to sell the stuff and make a little money but I think the margins will be tight.> I disagree that margins will be tight, but I guess it all depends on how you define tight. GumTech's gross margin for gum was about 35% last quarter and it has been trending up. My guess is that the gross margin on nicotine gum will be in the 40% to 50% range. GumTech's gum segment is operating at only about 10% capacity and is nearly breaking even. The reason that they are operating at 10% capacity is because they increased their plant and equipment in anticipation of nicotine gum and dental gum sales. Due to economies of scale, the marginal cost to produce a unit of gum above their break even point is much less than the marginal cost below their break even point. They don't need to add any plant and equipment and could increase sales to 80% capacity with a relatively small increase in labor costs. I estimate that nicotine gum would result in a marginal profit of 30% to 40% of sales, up to about $20 million in sales. If these estimates are close to being accurate, GumTech could book profits of $6 million ($0.80 per share) to $8 million ($1.07 per share) on an increase in sales of $20 million. Smith-Kline's sales of Nicorette and Nicoderm were $186 million and $112 million in the last two quarters. Sales rose ~65% in Q1 and ~10% in Q2. They don't break down sales of the gum and patch, but I think it's fair to assume that gum sales are close to, if not ahead of the patch at this point. Let's say that gum sales were about $200 million in 1998 and grow to $250 million in 1999. Do you think it's reasonable to estimate that GumTech might get only 10% of a market that has so few entrants? This is why I think a stock price of 20 to 25 is justified for nicotine gum alone. If Zicam does well, and all indications are that it will do well, an even higher stock price will be supported. GumTech could show a profit in Q3 because they are filling the channel with Zicam (~40,000 stores) and haven't started their advertising campaign yet. The quarter is almost over, and with sales of Zicam in the $4 million range, they could show a profit since they haven't spent much on advertising yet (that I know of). Best regards to everyone, Dan