Tuck, was just about to post the following on Trickle!
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Well, GNSL sucessfully wriggled out of the PKI call option. While getting rid of that millstone is undoubtedly positive, there has been a cost, and I don't mean the buy back of 2/3 of the PKI stock at the price PKI paid for it originally. Its pretty clear that their 9 consecutive quarters of about 50% revenue growth has been interrupted in large part due to their fight with PKI. To put it mildly, PKI did not put much effort into selling GNSL stuff during Q1. Can't say I blame PKI as they probably held the ethical high ground and this sandbaging probably put a lot of pressure on Jeff Williams, who managed to avoid giving any warning of missing Q1 results. The bad news came with the Q1 earnings announcment which followed immediately on the heels of the settlement.
Q12001 sales were up 10% yoy, but down 21% from Q42000. U.S. and Japan were up 55% and 19% respectively, but Europe (including UK) and Asia were down 38% yoy and 54% from Q4. Europe and Asia (except UK and Japan) were PKI's territory prior to the settlement. Under the expanded sales agreement PKI gets UK, the end date is extended from end of 2001 to end of 2002, and higher minimums are required of PKI. If Q1 sales in UK had been good, Iam sure they would not have lumped them together with PKI's E&A.
Revenue for Q2 is projected to be up 20%. For Q3 qnd Q4 revenue growth is expected to be back up in the 40-50% range and gross margins back up to 52-56%. Projected profits for Q2 - Q4 are (0.10-0.12 ); (0.06-0.08); (0.04-0.07 )
The launch of two major products is on schedule for the end of the H1 (within a month as of now);
A smaller benchtop version of their biochip system including 1) the dedicated RA-1 microarraying workstation and 2) the UC-4 microarray imager/scanner and integrating software. A high throughput proteomic sample preparation unit was recently made available; biz.yahoo.com
In the Q1 CC Q&A Williams was asked about their competive position. He was quite positive, especially with respect to the proteomics line(+47% in Q1) - citing the above new offerings. They are seeing a shift from large high throughput genomic research centers to small research facilities requiring dedicated equipment (RA-1 target). They say they had seen no order cancellations. He declined to to set a new date for profitability, now that Q4 is apparently out of the question, other than to indicate sometime in 2002. Note they now have outstanding 24.2 million shares outstanding and about 29 million in cash (34 @ 3/31 less a net of about 5m for PKI buy back).
Yes, I was the one who called your attention to the rumors. The alleged issue was the loss of people with specific expertise. As you suggested, I looked at the option status (per PS guidance siliconinvestor.com and can detect no personel turmoil. It turns out the shutdown of the Chelmsford, MA facility was in May of 2000, so this is old news in any case and I have completely discounted the rumor.
I kept buying all the way down to the bottom. Now up 131% from that point. I have lightened a little but GNSL is now my largest holding. Don't have a strong conviction at this point due to a lack of understanding of their true competitive position. I would love to hear opinions on GNSL vs. competition. My guess is they beat projections/estimates and risk reward is still positive, however, my finger is on the trigger.
Also, let me add my thanks and appreciation for all the excellent work you do and generously share here and elsewhere.
Regards
SMH
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UBS PaineWebber Inc. April 25, 2001
Genomic Solutions Inc.(GNSL - NASDAQ) - Strong Buy
US Biotechnology
Price: 4.08 Mkt Cap: 98m Target: 11.00 Yield: Nil Shrs O/S: 24m ROE: NMF
52 Week: 27.94 - 1.91
GNSL: MORE COLOR ON Q1 RESULTS
Summary:
Genomic Solutions hosted a conf call to give further color on Q1 results, which were pre-announced last week. Revenue
growth was 10% to $4.4 million. Now that GNSL has exited its call option arrangement with PKI, and has negotiated a
broader distribution agreement with more stringent minimum sales hurdles, we believe it is poised to post European sales
growth of at least 20%, augmenting hearty U.S. and Japanese sales growth of 40%-plus. Overall sales should increase 31%
in 2001, accelerating to 36% in 2002, driven by continued strong proteomic analysis tools as well as placements of mid-range
genomic analysis instruments. Based on guidance, we are modestly upwardly adjusting our `01 qtly estimates to
account for improving gross margins. We reiterate our Strong Buy rating and our $11 price target.
Highlights:
• Overall top line growth was 10% to $4.4 million in Q1`01. Proteomic instruments and consumables accounted for
approximately $2 million in Q1 revenues, up 51% from $1.3 million last year driven by strong U.S. and Japanese sales
growth. Genomic instruments and consumables accounted for approximately $2 million in Q1 revenues, down 11%, related
to weak PKI-related European sales and fewer than expected placements of GNSL`s high-end G3 instrument as some
customers shift away from creating DNA libraries in-house. We believe this underscores GNSL`s position as a supplier of
choice to customers performing medium throughput functional genomics analysis.
• On April 19, Genomic Solutions announced that it had terminated its call option arrangement with PKI, buying back
approximately 69% of the shares owned by PKI for $5.5 million. The company also negotiated a broader distribution
agreement with PKI with more stringent minimum sales hurdles. PerkinElmer will distribute Genomic Solutions` products
in the U.K. as well as the rest of Europe. It will also sell GNSL`s microarrays, bundled with reagent products, in Japan,
supplementing Genomic Solutions` own distribution efforts. At the end of 2000, PKI-related sales accounted for 14% of
GNSL`s total top line; by the end of 2001, we expect that percentage to grow to nearly 20%. Given an increased focus on
training PKI salespeople, as well as more stringent minimum sales hurdles for PKI, we believe GNSL is poised to post
European sales growth of at least 20%, augmenting hearty U.S. and Japanese sales growth of 40%-plus.
• For full year 2001 overall sales should increase 31%, accelerating to 36% in 2002, to $25 million and $34 million,
respectively, driven by continued strong placements of both genomic (microarrays, scanners) and proteomic (protein
imagers, gel processing) analysis tools. Based on guidance given on the call, we are modestly upwardly adjusting our `01
quarterly estimates to account for improving gross margins and a lower share count. Our adjusted full year `01 loss per
share estimate is ($0.34).
• We reiterate our Strong Buy rating and our $11 price target. |
