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Biotech / Medical : Paracelsian Inc (PRLN) -- Ignore unavailable to you. Want to Upgrade?

To: Jonathan Schonsheck who wrote (4304)	4/27/2000 9:16:00 PM
From: John H. Farro	Read Replies (1) \| Respond to of 4342

I am quite pleased with yesterday's announcement. PRLN can toot its own horn about its Ah ImmunoAssay till the cows come home but no one will really care. It is significant that the praise for PRLN's technology is coming from Kubota's Deputy Manager of Technology Development. So what will PRLN's stock price look like if events unfold as planned? Yasuo Kobayashi said the market for testing in Japan is $400 - $600 million/year. Let's use the lower figure in our calculation and assume that PRLN captures 25% of the market, as Kobayashi predicted might happen. In that case, PRLN's technology will be responsible for $100 million in testing. I have no idea how much of that money will actually go to PRLN and how much will go to Kubota and/or other entities. For arguments sake, let us assume PRLN will get 10% of the $100 million, or $10 million. What will PRLN's net income be if it gets $10 million in revenue? If memory serves me right, I think PRLN is now burning about $1.5 million/year. Let us assume that in 2 years PRLN's expenses will be $3 million/year. If this is the case, they will have a net profit of $7 million. They have roughly 20 million shares now outstanding. If they do not increase the number of shares then they will earn $.35/share. If they have a P/E ratio of 20, then this will be a $7 stock in two years. Don't take my calculations too literally because they are based on a lot of guesses. The result could be way off the mark because I could be wildly wrong in my assumptions. Instead, use my method of calculation as a template for your own analysis. There are three assumptions that I made that may be overly optimistic and four that I made that may be overly pessimistic. Hopefully, they balance each other out and I will not be too far off the mark. The overly optimistic assumptions are as follows: 1) Expecting us to capture 25% of the Japanese market in two years is probably unreasonable. I will be happy with 10%. 2) It may cost significantly more than $3 million/year to run the company in 2 years. Perhaps $5 million/year would be a better guess. 3) The company will probably issue new stock within the next two years. My best Wild Ass Guess is that there will be 25 million shares outstanding. This will dilute earnings. I suspect that the overly pessimistic assumptions are as follows: 1) PRLN will probably earn more than 10% of the testing revenue. Maybe they will get 20 - 25% 2) I assumed that PRLN will not make a penny off the Ah ImmunoAssay in countries outside of Japan. I suspect that if marketing is successful in Japan we will see at least some money trickling in from elsewhere in Asia and Europe. 3) I assumed PRLN's revenues from its TCM pharmacy and from its BioFIT program will be negligible. Hopefully, this will not be the case. 4) I think a P/E ratio of 20 is conservative. If PRLN is profitable, has an active web site, and is growing quickly, I suspect that it will have a significantly higher P/E. Everyone here is free to plug in their own numbers and play the stock price guessing game. I would be remiss, however, if I did not point out that there still is a considerable degree of risk here. There are still a lot of "IFs" to overcome before success is assured. IF PRLN overcomes the last technical hurdle and IF they can turn the letter of intent with Beijing Health-Way Management Company into a contract and IF nothing prevents Beijing Health-Way Management Company from fulfilling its end of the contract and IF the screening methods are officially approved (presumably by the Japanese government), then these calculations will be relevant and we will all be happy campers. Despite these cautions, I feel the company's chance of success has been greatly increased over the past two days.