B) Update on CYTC
Rated a BUY
Revs 12.3M to 14.3M to 16.2M to 18.8M to 21.3M to 24.7M to 28.8M to 33.5M Jun00 per dailystocks
EPS 0.02 to 0.03 to 0.03 to 0.07 to 0.14 to 0.17M Jun00 per daily stock
Zacks est 0.16 for Sep00.
28-Jul-00 13:00 -- 14:00 ET
CYTYC Corp (CYTC) 46 3/4 -7 1/2 : Pacific Growth Equities downgrades to LT BUY from BUY and sets new price target of $57 from $55. Firm adjusts rating based on limited upside to new price target but remains confident in company's underlying fundamentals; stock currently trading at 47.6x FY01fully taxed EPS of $1.14.
29-Jun-00 15:00 -- 16:00 ET
CYTYC Corp (CYTC) 46 1/2 -10 3/8 : Banc of America Sec downgrades to BUY from STRONG BUY; share price suffers in wake of downgrade.
CYTYC Corporation [NASDAQ: CYTC]
2000 EPS: $0.52 from $0.60
2001 EPS: $1.15 from $1.10
Buy
Wade King, Medical Technologies
"Cytyc released second quarter financial results, with revenue of $33.5
million, ahead of our $32.2 million projection," said King. "We are
increasing our 2001 revenues and earnings-per-share projections, based
upon the strong uptake of ThinPrep in the U.S. market. For 2001, our new
revenue projection is $196.6 million, up from $182 million, previously.
We anticipate significant short-term volatility in shares of Cytyc,
however we are maintaining our Buy rating, and we advise investors to
purchase shares on any significant weakness."
``I am excited to report our ninth consecutive quarter of revenue growth,'' said Patrick J. Sullivan, Cytyc's president and chief executive officer. ``At the end of the second quarter, the ThinPrep® Pap Test(TM) represented 28 percent of all Pap tests in the United States, up from 25 percent in the first quarter. Our largest customer finished the quarter with more than 40 percent of its Pap tests being the ThinPrep Pap Test, doubling use of our test since the beginning of the year.''
``Our strong momentum is a direct result of our marketing strategy. Our efforts in the area of physician conversion continue to be targeted and highly effective, with more than 21,000 doctors now using our significantly improved technology for cervical cancer screening,'' added Mr. Sullivan. ``The Thin Prep Pap Test is the standard of care from Maine to Maryland as a result of our 1999 direct-to-consumer advertising campaign. Based on this success, we are expanding our direct-to-consumer campaign to other target markets.'' Mr. Sullivan concluded, ``I am confident this investment will help us achieve our goal of establishing the ThinPrep Pap Test as the standard of care nationally in the year 2001.''
Shares of the Boxborough, Massachusetts-based company fell 6 1/8 to 48 1/8 in Nasdaq Stock Market trading of 4.4 million, almost five times the three-month daily average.
The company reported net income of $6.74 million, or 17 cents a share, up sixfold from $1.03 million, or 3 cents, a year ago. Analysts said on a fully taxed basis, however, earnings per share were 11 cents, below the 13-cent average estimate of nine analysts polled by First Call/Thomson Financial. Sales rose 78 percent to $33.5 million from $18.8 million. ``Whenever the bottom line is lower than expectations, you'll get some investors who will run for cover,'' said Wade King, a Robertson Stephens analyst with a ``buy'' rating on the stock. Cytyc's sales and marketing expenses rose 35 percent to $14.4 million from a year earlier as it spent more to increase market share through consumer advertising and by educating doctors about its ThinPrep Pap Test. Cytyc also had about $1 million, or 2 cents a share, in legal expenses, related to patent litigation with rival TriPath Imaging Inc.
Internet Posts
A couple of thoughts on expenses.
First, sales and marketing expenses are not going to go down. Direct-to-consumer campaigns are monstrously expensive, but they sustain price. Sullivan is selling and pricing TP as if it were a pharmaceutical -- he needs the huge sales and marketing burden to support the price. It will never go away, at least until Cytyc's TP margins erode (and erode they will -- the only question is whether it is this decade or next).
Second, general and administrative expenses will continue to rise. This is for both benign and, in my opinion, wasteful reasons. Sullivan and his crew have been working very hard for many years to create this value -- I believe it in my bones that they feel that they deserve to be paid very well, and as long as the earnings keep coming in the Board won't put a stop to the increases. Also, this is an extremely litigious company -- it has sued any number of companies and individuals who have attacked the product. Those lawsuits may have been good business in the long term for Cytyc's stockholders, but they have a negative impact on earnings "cosmetics." The lawyer's fees run through G&A as expenses, but related recoveries are explained separately as non-operating income. Cytyc writes checks to lawyers, but when it collects money it is reported for years to come as a gain on the settlement of litigation, which the market discounts.
One question -- if this company only earns $0.17/share doing 28% of the Pap smears in the United States, what are the terminal earnings for TP? Another question -- has there been any material progress made outside the United States? Somebody on the conference call should ask these questions.
7/27/00 on yahoo
The company's expenses did ratchet higher, but that's to be expected for a company that is gearing up to grab large chunks of market share, especially on a global basis. These costs should continue to rise, but perhaps at a somewhat more moderate rate. Net, the 17 cents was actually right in line with my 17-18 cent estimate, which was comfortably above the silly 14 cent estimate of the analysts. They will now be forced to raise their estimates for the year, which were a silly 60 cents. Pending review, I'll stick to my 75 to 80 cents for this year and in the general ballpark of $1.50 for next year. As for the stock, it trades at a rich valuation in a market that is pretty volatile and punishes any tech stock that disappoints. CYTC didm't disappoint. But, if the NASDAQ goes down, CYTC will probably share in the pain, That'll create more buying opportunities. Long term, it remains an excellent investment, because it's growth path is so outstandingly clear. There remains a lot of market share to be gobbled up. I managed to pick up some more stock when the price last dipped to $45. If the stock does so again, I'll probably buy some more. 7/28/00 on yahoo
7/28/00 9:46 am
Msg: 7532 of 7580
The revenue was great news, the expenses were an embarrassment. The .13/.14 earnings number the analysts were quoting was a fully taxed number with an assumption of 40 to 50 % tax rate. They were expecting about .23 or .24 untaxed. Cytyc just blew it big time. I'm very distressed as I'm a firm believer in the technology. I think they are going to get blasted in the CC today because of their horrible expense control and inability to guide the street appropriately. Well see soon..... 7/28/00 on yahoo
S&P had a recommend pre open this am
so it was NOT something simplistic like WS expecting .23/share pre-tax.
7/27/00 7:20 pm... CONTINUE TO BUY CYTYC (CYTC 54*****) ON
STRONG GROWTH PROSPECTS... Posts Q2 EPS $0.17 vs. $0.03,
well ahead of our $0.14, Street's $0.13 estimates.. Revenue
surged 78% as ThinPrep continued to gain market share... At
end Q2, ThinPrep held 28% share, vs. 19% at end '99.. Co.'s
largest customer doubled utilization of ThinPrep to 40%,
from 20% at end '99... 21,000 doctors now using Thinprep.
Still see 65% revenue growth, 7-fold EPS growth in '00.
Upping '00 EPS $0.04 to $0.65, see '01's at $1.05.
Consumables offer good visibility, stability... With '01
EPS growth 71%, L/T growth 55%, CYTC attractive. /J.Massey
7/28/00 on yahoo
CYTC CC NOtes
- 8% international
- R&D expense primarily imaging system
- S&M - active marketing, shows, 4 regions direct-to-consumer advertising started
legal $1M
- inventory up for T3000 manufacturing
- TP is 50% of market in NY and DC
- expect 50% nationally by end of 2001
- Quest is at 40%, 60% by end of calendar year
- 77 new instruments placed, 30 were existing labs, rest were new labs
- 232 insurance carriers covering TP
- 21,000 physicians, 13,000 use TP as choice
- print and TV ads in NY and DC
- initiated ads in philly, atlanta, north-florida, and chicago in June
- will select more markets to west and southwest during the remainder of this year
Kurt Krueger of BofA
- UK feasibility studies - will select 4 sites for implementation study, will end in 1Q01 begin full implementation in 2Q01
- more breakdown of market by region - mid 20's down coast, west drops off, composite is 28%
- moving west and southwest to more markets for ads
Wade King of RS
- 8 largest labs 40% of total market, 45% of TP in 2Q00, 49% of TP in 1Q00
- pricing will remain stable
- 4% increase 2Q00 in disposables price, should go up as smaller labs join at higher prices
- lawsuit timelines - patnetn litigation in deposition phase, heavy lawyer expenses, ends in August, then to expert witness phase, trial early in 2001.
- chlamidia trials, recommend testing for ages 18-25, will start trials 3Q00 testing directly from TP vial, approval from FDA mid 2001, currently 20M tests/year
Ricky Goldblossom of ??
- smaller labs will ramp up quickly
- Working with Quest in 4 new areas, Quest is talking to docs before ads to warn them of what's coming, started running ads 5-June
- 90 days of TV ads, followed up by 90 days of print ads
- $0.5M for each of the 4 markets, total of $2M
Herb Henderson of US BanCorp
- same campaign as last year in NY and DC, i.e. no new production costs
- Quest and LabCorp are helping to comarket
- Chlamidia tests made by Abbot, Digene, and Roche plus one other that's not being considered
- $3M profit from last litigation
???
- no revenue increase yet from HPV testing out of TP vial
- chlamidia testing will help increase TP volume and support TP pricing
- no direct income from the test manufacturer
- media purchasing will occur throughout year
- TP test cost is just over $1 now, don't expect much more decrease, maybe 10% as volumes continue to increase
??
- FDA submission on screener early next year, lots of foreign interest
Ned Walsh, Cleary Swann
- TPTH charging <$5 to $7 per test
- CYTC feels pap smear is real competitor, not matching TPTH on price
- TPTH says CYTC adding promotional packages to offset costs, CYTC denies this
???
- Q3 S&M expenses vs. Q4, even spread for ads but not sure of exact plan
- screener reduces time and labor per slide
- cytotech training enrollment is down - labor shortage
- labs are very interested
- screener will cut labor costs in half for labs
Craig David of ??
- S&M expenses will continue to increase but at lower rate than revenue growth
Kevin Lane of Slinker and Co.
- screener will only be used with TP due to superior slide quality
?? Slinker of Slinker and Co.
- independant lab analyzed the ACYT solution prior to CYTC filing the lawsuit
???
- $0.5M of new ads were in the 2Q00 cost
John Massey of ??
- international sales at 8%
- TP3000 response is good, labs have been budgeting
- CYTC developing priority shipping list
- shipping will begin in September
- in discussions with Kaiser but nothing to report
7/28/00 on yahoo
It should be noted, that in most European countries the screening for cervical cancer is run as part of a national program as opposed to the opportunistic (funny word, but that is the word being used by pathologists) program in the US. This means that the labs are very cost oriented (at least for now) since they cannot bill the customer but have to operate within (very) restricted budgets. This means, in turn, that penetration in Europe IMO to a large extent will be dependent upon the success in the US. And a success it is the way I see it; 28% now and for the 50 % the end of next year appears to be absolutely plausible.
From a technological point of view, LBP (formerly known as monolayer, which it is'nt!) is, without a doubt, easier to analyze, i.e. once the cytotech has gotten used to it. It actually takes some getting used to because the context which is apparent in conventional Paps is lost in LBP. On the other hand the images, as seen in a microscope or on a video screen are much clearer and easier to interpret. This all calls for an acceptance from a technology standpoint even though people, also in this field, are conservative.
As far as the economic side of the "problem" is concerned, I have no doubt that once the superiority of the LBP is established (again conservatism) the American way will prevail. No European professional will admit to using inferior methods in his lab, so this hurdle will be passed too.
(In all due fairness I should mention that I have not been able to discern, from an analytical point of view (i.e. image analysis) between PREP and ThinPrep. This much said I trust that Tripath are spending all their gun powder on their imaging leg, which, with 25% screening for no further review is NOT cost competitive.
All these lines boil down to, that while revenue has to be gained in the US for the near future, Europe will be open in a year or two. 7/28/00 on yahoo
Has anyone been tracking the insider selling activity? Accumulatively, there's been a hell of a lot since May.
biz.yahoo.com
Sullivan: 115,000 shares
Kelly: 55,000 shares
Levangie: 50,000 shares (proposed sale)
Eltrich: 31,727 shares (proposed sale)
That sniffs of more than just a little profit taking.
7/29/00 on yahoo
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Summary.
So much FUD on this one. Marketing expenses were up but international sales is the prize when only 8%. A one product company that is gaining market share and getting re-imbursed by insurance companies. Momentum players will force it all over the map. When revenues growth rates slow to single digits sequentially then it is exit time. Not now.
Jack |
