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Thursday, June 12, 1997
UroMed
Corp. HOW DID IT FIND TROUBLE? UroMed specializes in the treatment of urinary incontinence, but as acceptance of its new devices did not go as quickly as the company expected, the stock price sprung a leak. In late 1996 the stock was listed by Individual Investor as one of the "Magic 25" stocks for 1997, even that vote of confidence didn't stop the slide. The bottom line for UroMed was that the hope and expectation for the treatment of up to 8 million incontinent women was met with the reality of sluggish sales and ongoing losses. Recently the company announced a restructuring that involved a 17% cut in its workforce. This was only the latest in a series of disappointments for investors. The company has reported widening losses, and a look at analyst estimates shows the stream of losses is expected to continue for the foreseeable future. BUSINESS DESCRIPTION UroMed specializes in products for the treatment of female urinary incontinence. Its marquee product is the Reliance urinary incontinence device. The company also makes the Impress Patch and recently purchased the Introl incontinence device from Johnson and Johnson. The urinary incontinence market is huge. Presently, the treatment is limited to adult diapers, surgical correction, and collagen injections. There are no other significant mechanical devices on the market. The potential market for these devices has been estimated to be as large as $3 billion. While the company has FDA approval for the Reliance device, it remains to be seen whether the device will gain broad acceptance by physicians in the U.S. FINANCIAL FACTS Income Statement 12-month sales: $2.2 million
12-month income: ($52.9 million)*
12-month EPS: ($2.05)*
Profit Margin: N/A
Market Cap: $92.7 million
(*Includes non-recurring charges)
Balance Sheet
Cash: $39.5 million
Current Assets: $95.5 million
Current Liabilities: $8.1 million
Long-term Debt: N/A
Ratios
Price-to-earnings: N/A
Price-to-sales: 42.1
HOW COULD YOU HAVE SEEN IT COMING? This company has always been highly speculative. Analysts don't expect positive earnings for the next couple of years. The relatively scant sales in the European market recorded last year could have been a sign of things to come, as the start up of U.S. sales has been equally sluggish. Any Foolish investors owning shares of a company with no earnings and weak sales has potential trouble on their hands. WHERE TO FROM HERE? What hope is there that UroMed will stop the incontinence of price depreciation? At one third of its autumn price, is it now a bargain? This Fool has his doubts. A statement by the company on June 3 indicates there will be minimal European sales in 1997 because of more than adequate inventories. This is frightening because a mere $2.6 million in sales were booked in 1996, and this represents the said inventory. On the other hand, it is a big market and UroMed has a unique spot in that market. There may be hope. One way to value companies like Uromed is to look at the price compared to research and development spending. This price-to-research and development ratio is nicely explained in Ken Fisher's book, Super Stocks. The highest acceptable ratio is 15. UroMed's ratio is 12.6, which does not look horribly overvalued. The price-to-sales relationship is skewed because of the absence of sales, and there is no way to calculate a PEG and YPEG off of negative numbers. This Fool would still keep an eye on UroMed. Increasing sales in the U.S. market could be a sign of big things ahead, but I'd wait for those sales before buying the stock. -Mark Weaver, MD ([email protected])
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