This Feature |
|
Related Items |
|
Tuesday, July 14, 1998
Enamelon Inc.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENML)") else Response.Write("(Nasdaq: ENML)") end if %>
Phone: 914-237-4024
Website: www.enamelon.com
Price (7/13/98): $7 3/8
HOW DID IT FIND TROUBLE?
Why Enamelon, what great big teeth you have! The better to bite you with, my dear. Shareholders of the company with the supposedly revolutionary toothpaste have been mauled this year.
The stock had been a 1997 darling, soaring well before the namesake product hit the market. By the time the Enamelon toothpaste hit the shelves in January, the expectations were high and the valuations were higher.
There was little margin for error. Then -- there was error. After a slow rollout and a poor $1.7 million in sales in the first quarter, the oral care specialist launched ambitious marketing campaigns to help grow sales. Along with the April earnings announcement came recycled hope. The anticipated sales from trade programs that had previously failed to materialize would come during the June quarter. With aggressive advertising, including a May coupon effort that gave away a sample size for free, maybe Enamelon was right and the second quarter would bring a freshly polished smile to the face of investors.
The pearly whites never came. Last month the company pre-announced that June quarter sales would be approximately $2 million. The stock was fittingly chipped. What's the difference between floss and flaws? The company was hoping to replace the former, and has plenty of the latter.
BUSINESS DESCRIPTION
Based in Yonkers, New York, Enamelon's flagship toothpaste features remineralization technology licensed from the American Dental Association Health Foundation (ADAHF). Tooth enamel is stripped of small amounts of minerals, specifically calcium and phosphate, every day. Made with amorphous calcium phosphate, Enamelon allegedly restores those minerals and, in theory, should strengthen the teeth and its cavity defenses.
Future products include an oral rinse and chewing gum -- all with amorphous calcium phosphate.
FINANCIAL FACTS
Income Statement
12-month sales: $1.7 million
12-month income: ($12.3 million)
12-month EPS: ($1.42)
Profit Margin: N/A
Market Cap: $74.5 million
Balance Sheet
Cash and Investments: $35.7 million
Current Assets: $39.5 million
Current Liabilities: $5.8 million
Long-term Debt: None
Ratios
Price-to-earnings: N/A
Price-to-sales: 43.8
HOW COULD YOU HAVE SEEN IT COMING?
How bad is $1.7 million in quarterly revenues? In January the company had signed on major retailers including Wal-Mart, Safeway, and Walgreens. The A-list of department stores, supermarkets, and drugstore chains represented a total of 13,000 outlets for Enamelon distribution. If the company is, in fact, servicing all of those units, it is only moving about one tube a day at each of the stores.
That kind of dismal tally isn't going to cause competitors Colgate-Palmolive <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CL)") else Response.Write("(NYSE: CL)") end if %>, Aquafresh parent SmithKline Beecham <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBH)") else Response.Write("(NYSE: SBH)") end if %>, or Crest-maker Procter & Gamble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %> to lose any sleep over the new entrant.
The weak sell-through has been a clear letdown, but few would have thought it possible, especially on the heels of the company committing $28 million to advertising this year. That budget is more than seven times the total sales the company has mustered over the first half of the year, and one has to wonder if this remineralization technology can be applied to Enamelon itself.
While this company's rise and fall may be compared to Quigley <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QGLY)") else Response.Write("(Nasdaq: QGLY)") end if %> and CNS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNXS)") else Response.Write("(Nasdaq: CNXS)") end if %>, one-product upstarts with alleged medical breakthroughs in Cold-Eeze lozenges and Breathe Right nasal strips, there is a major difference -- at least they had initial retail success.
If you want an Enamelon test case, look up 3DO <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: THDO)") else Response.Write("(Nasdaq: THDO)") end if %>. 3DO came public and the shares soared on hype that the eventual product, a home video game console, would put Nintendo out of business. Of course, that never happened. When consumers are stuck on a brand name, be it Crest, Colgate, or Sega, prying loyalty often takes more than a free tube of toothpaste. A cautious Fool may not have predicted the second quarter shortfall -- but that same Fool probably wouldn't have bought into the 1997 hype to begin with.
WHERE TO FROM HERE?
Is Enamelon lost in Yonkers? Retailers are jittery about stocking commitments with Enamelon and investors have every right to feel the same way about trusting their own cash with the company.
While the company is still cash rich, the hoard is dwindling down and now the company is on the clock. Earlier this year the company struck a deal with ADAHF. In return for the exclusive use of the patented remineralization process, Enamelon will pay $400,000 a year. If sales surpass $100 million, that royalty will bump up to a flat $600,000. The deal runs through 2008 and all it assures is that if Enamelon survives it will have written at least $4 million in checks to ADAHF.
Either way, the payouts should read $400,000, not $600,000, for the time being. That is just one more hurdle for the company to clear in turning a profit. Although winning over mouths, which it failed to do even when it was giving the toothpaste away, is more than a hurdle -- it's a pole vault.
The dark horse here is the chewing gum. Cynical as I am over the toothpaste, I can see where the market here might be more receptive. Can Enamelon win over that fifth dentist that always eluded Trident? With toothpaste, everyone simply assumes that their favorite brand is the best fluoride solution. A therapeutic gum? Why not.
But will Enamelon live to see that day? Poor Little Red Riding Hood -- she seems destined to be draped in red ink for quite some time.
-Rick Aristotle Munarriz
([email protected])
Check out the Daily Trouble Message Board!
|
|||||||||
<% if request.querystring("source") = "yhoolnk" then referer = Request.ServerVariables("HTTP_REFERER") if referer = "" then referer = "http://finance.yahoo.com/" response.write " " end if %> <% function YahooWelcome if gsCookieUsername = "" and request.querystring("source") = "yhoolnk" then %> |
Welcome, Fool! |
|
Be a Fool and get free, unlimited access to our site.
What we offer: |
© Copyright 1995-2000, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. The Motley Fool is a registered trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us |