10/25 8:15A (DJ) =DJ HEARD ON THE NET: Harsh Rumors Dog Biomatrix
By Aaron Elstein
The Wall Street Journal Interactive Edition
This story was originally published late Friday.
NEW YORK (Dow Jones)--If you read what some people are saying about
Biomatrix Inc. (BXM) on stock-chat message boards, it seems like you'd be crazy to buy its stock.
The biotechnology company is artificially inflating its profits by pumping
more products to distributors than they can possibly sell, anonymous
message-board participants say. If that isn't bad enough, other postings say
Synvisc, Biomatrix's lead product, has deadly side effects.
"Not only are the side effects of Synvisc more common than almost any other
medical treatment ... they are also extremely dangerous and lethal. That is
why doctors refuse to use Synvisc and why Synvisc has no end-use demand,"
writes one person on a Yahoo! Finance message board (quote.yahoo.com).
The identity of that poster couldn't be determined, and there appears to be
no evidence to back up the assertions. Biomatrix says Synvisc, a treatment for
pain associated with osteoarthritis of the knee, is safe.
Brad Stone, a spokesman for the U.S. Food and Drug Administration, says the
agency hasn't issued any warnings or recalls related to Synvisc.
Wall Street analysts say they've never heard of any health concerns about
the product, and even Donna Lucchesi, director of marketing at OrthoLogic
Corp. (OLGC), a Tempe, Ariz., company that markets Hyalgan, a competing
arthritis treatment, says she believes that Synvisc is safe.
All of this serves as another reminder that, when it comes to message-board
chatter, it pays to do some research before making an investment decision
based on what you read. The anonymous nature of many message boards means
there is little accountability for the accuracy of information that is posted
on line, and message-board participants can have hidden agendas.
Rory B. Riggs, the president of Biomatrix, Ridgefield, N.J., blames
disgruntled former employees for the postings that have been made for months
criticizing the company. However, he says he doesn't know the identity of any
specific individuals and bases his assertion only on claims that message-board
participants themselves have made online.
Riggs says the company, which has 369 employees, has never laid off large
numbers of people, "But over the course of business, people have left," he
says. "Not everyone's happy all the time."
The comments about the safety of Synvisc followed months of online
discussion about the way Biomatrix distributes the product, a substance
derived from the combs on roosters' heads. It is injected into the knee joint
and serves as a lubricant and cushion to relieve pain.
Biomatrix has posted a string of stronger-than-expected earnings reports
this year, including a report of improved third-quarter net income earlier
this week. But critics attribute the gains to shipments of Synvisc that are
sitting on distributors' shelves, not sold to arthritis patients. The
company's stock has struggled the past six months. After hitting 45 on the New
York Stock Exchange in April following a surprisingly strong report on
first-quarter earnings, the stock retreated to nearly 20 by early June and it
has moved little from that level since. It closed at 23 3/16 Friday on the Big
Board.
Short sellers, who aim to profit by falling stock prices, have taken a keen
interest in Biomatrix. Nearly 50% of the company's shares not held by insiders
had been sold short at the time the stock hit its high in April.
Through mid-October, that open short position stood at about 37%. (Shorts
sell borrowed shares in hopes of repaying those stock loans later with shares
purchased at a lower price.) Critics of Biomatrix say they believe that
Wyeth-Ayerst, the American Home Products Corp. (AHP) unit that distributes
Synvisc, is sitting on thousands of boxes of the product in its inventory, a
sign, they say, that demand for the product has been tepid. By shipping
product into the distribution channel, critics say, Biomatrix is making demand
seem stronger than it is.
Indeed, Jeffrey Peters, an analyst at Dain Rauscher Wessels, recently cut his earnings estimate of Biomatrix's 1999 earnings to 71 cents a share from a
previous forecast of 74 cents a share. For 2000, he reduced his forecast to
$1.10 a share from $1.35 a share. Peters says he made the moves because he
believes that an advertising campaign that Wyeth-Ayerst launched for Synvisc
in April was boosting sales less than he had expected.
Riggs, the Biomatrix president, doesn't dispute that Wyeth-Ayerst is holding
Synvisc in stock, but he says the inventory was built in anticipation of the
ad campaign. "We'd been saying for some time that we wanted Wyeth to have 90
days of inventory before they started the promotion," he says. "Everything we
gave them this quarter, they sold."
Biomatrix, in its earnings report this week, said Wyeth-Ayerst reported
third-quarter sales of Synvisc of $34.7 million is the U.S., a 40% increase
over the level of the second quarter. The company said nearly 76% of these
sales were directly to physicians. Douglas Petkus, a spokesman at
Wyeth-Ayerst, says he hadn't seen Biomatrix's earnings report, but said the
company is "pleased with the market's receptivity" to Synvisc.
(END) DOW JONES NEWS 10-25-99
08:15 AM |
