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FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay
PathoGenesis Investors Exhale at $12
Investors in PathoGenesis <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PGNS)") else Response.Write("(Nasdaq: PGNS)") end if %> are still waiting to exhale, as the inhaled antibiotic company's shares continue to slide this morning, dropping $22 3/4 to $12. The firm began marketing its cystic fibrosis drug "TOBI" (tobramycin solution for inhalation) in the U.S. in January of 1998 -- kicking off the effort with $14.5 million in sales. Now, a year later the firm announced that it expects TOBI sales of $10 million in the first quarter of 1999. As a consequence, PathoGenesis expects to report a net loss of $4.9 million, or a loss of $0.30 per share in the first quarter (compared with estimates of $0.20). Full year 1999 results are also expected to suffer, with the company's estimate for a net loss in 1999 of about $3.3 million to $4.1 million, or a loss of $0.20 to $0.25 cents per share (compared with estimates for $1.48).
The firm attributed the ugly first quarter comparisons to the fact that "some first quarter 1999 sales were accelerated into the fourth quarter of 1998 as patients and wholesalers increased their normal orders." Re-assessing an upward growth trajectory for one quarter is unsettling enough, but what about the balance of the year? Here is a portrait of the evolving story. (AOL users, expand window to view table.)
1997 1998 1999E New 1999E
Sales -- $60,684 $100,167 $62,000
Cost Of Goods Sold -- 9,555 16,500
Gross Profit -- 51,129 83,667
R&D 28,018 28,993 33,000
SG&A 10,582 20,074 28,000
Operating Profit (38,600) 2,062 22,667
Net Income ($33,038) 5,883 22,667 ($4,100)
*Numbers in 000s of dollars. Former 1999 Estimates from IBES.
PathoGenesis is unique among the small drug companies in that it chose to go it alone with its sales efforts instead of partnering with a large pharmaceutical company. If persuading doctors to prescribe TOBI is the key barrier to acceptance (as the company states), then the firm's announcement that it added 7 people to its 24 person sales force sounds a little weak.
In its fourth quarter conference call, management stated that it had passed its goal of 7,000 active TOBI patients in the U.S. at year-end, and that it had given a new target for 1999 in the 9,000-10,000 patient range. Considering that there are only about 32,000 cystic fibrosis patients in the U.S., and the fact that news about effective drug treatments travels fast in such small communities, perhaps PathoGenesis is just seeing a natural slowing of penetration (it already has 20% of the market). Overall, the company's drug has shown a high degree of effectiveness, and interested investors should take a closer look to see whether or not management is purposely issuing conservative guidance for the rest of the year.Residential and commercial maintenance, repair, and equipment installation firm American Residential Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARS)") else Response.Write("(NYSE: ARS)") end if %> rose $1 to $5 3/8 after agreeing to be acquired by facilities management company and Merry Maids parent ServiceMaster Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SVM)") else Response.Write("(NYSE: SVM)") end if %>. ServiceMaster will start a tender offer for all ARS shares at a price of $5.75 per share in cash, a 31% premium to ARS's closing price of $4 3/8 per share yesterday.
Pet supplies retailer Petco Animal Supplies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PETC)") else Response.Write("(Nasdaq: PETC)") end if %> unleashed a $1 9/16 gain to $8 1/16 after posting fiscal Q4 EPS of $0.37, up from $0.25 a year ago and ahead of the First Call mean estimate of $0.34. The company added that its same-store sales rose 8.7% during the period compared to a year ago and 6.4% for the fiscal year overall.
Online software retailer Egghead.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGGS)") else Response.Write("(Nasdaq: EGGS)") end if %> gained $1 7/8 to $20 3/16 after Prudential Securities started coverage of the company with a "strong buy" rating and a 12-month price target of $30 per share.
Technology-oriented websites and portal operator CNET Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNET)") else Response.Write("(Nasdaq: CNET)") end if %> picked up $3 7/8 to $97 1/8 after agreeing to acquire privately held online computer and consumer electronics comparison shopping services firm KillerApp for 500,000 common shares, valuing KillerApp at $46.6 million based on yesterday's closing CNET price of $93 1/4 per share.
Photronics Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLAB)") else Response.Write("(Nasdaq: PLAB)") end if %>, which makes photomasks used in the production of semiconductors, tacked on $1 9/16 to $20 1/2 thanks to a Salomon Smith Barney upgrade to "buy" from "outperform."
Caller ID equipment and telecommunications marketing support services provider Innotrac Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INOC)") else Response.Write("(Nasdaq: INOC)") end if %> rang up a $3 9/16 gain to $15 3/4 after saying strong Caller ID promotions in January and February will lead to Q1 EPS between $0.33 and $0.35, topping the First Call mean estimate of $0.26.
Enterprise network integration tools and services provider Computer Network Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMNT)") else Response.Write("(Nasdaq: CMNT)") end if %> moved up $1 3/4 to $12 3/4 after Bear Stearns started coverage of the company with a "buy" rating and a 12-month price target of $19 per share.
Nautica and Tommy Hilfiger branded apparel manufacturer and wholesaler Oxford Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OXM)") else Response.Write("(NYSE: OXM)") end if %> added $1 1/4 to $22 7/8 after posting fiscal Q3 EPS of $0.76, up from $0.60 a year ago, thanks to a 15.3% year-on-year rise in net sales to $206 million.Atlantic Coast Airlines Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACAI)") else Response.Write("(Nasdaq: ACAI)") end if %>, which operates United Express, fell $3 15/16 to $22 1/16 after it warned that unusually inclement weather will reduce Q1 EPS by $0.03 to $0.05. That would mean EPS of between $0.16 and $0.19, which would be below current consensus estimates of $0.20 and could be flat with the $0.16 the company earned in the same period last year.
PC direct seller Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>, which fell $2 3/8 yesterday reportedly on concerns that the company may be shipping fewer units than expected in Q1, lost another $1 5/8 to $36 1/4 this morning.
Health and life insurer Conseco Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNC)") else Response.Write("(NYSE: CNC)") end if %> retreated $1 9/16 to $34 after The Wall Street Journal's "Heard on the Street" column said some analysts believe the company may have difficulty meeting earnings targets because it "shows signs of strain from a 16-year acquisition binge." Conseco struck back with a press release in which Chairman Stephen Hilbert called the column "spicy opinion and pot-stirring rhetoric" and said the company's "results have been solid [and]... Our outlook is positive."
Internet products and services company Globix Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GBIX)") else Response.Write("(Nasdaq: GBIX)") end if %> lost $4 3/4 to $37 after it announced plans to sell 4.6 million common shares of company stock to the public at $37 per share, an 11% discount to yesterday's closing price. The new issues represent more than a doubling of the total shares outstanding. Globix plans on using proceeds from the offering "to fund the completion of its network and for general corporate purposes."
Financial services holding company First American Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FAM)") else Response.Write("(NYSE: FAM)") end if %> gave away $4 9/16 to $36 1/2 after it said it expects Q1 and full-year 1999 EPS to disappoint Wall Street estimates. Q1 results are seen 4% to 7% above last year's $0.57 mark, with analysts currently calling for $0.71, while the full-year figure is expected to come in 5% to 7% ahead of the year-ago $2.57 tally. A First Call survey of 13 analysts has a $2.99 per share consensus for the year.
Soda giant Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> fizzed away $2 3/4 to $64 15/16 following reports that Merrill Lynch lowered its Q1 EPS estimate by a penny to $0.31. First Call currently has a $0.31 consensus estimate for the quarter. Meanwhile, archrival PepsiCo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> spilled $1 7/8 to $37 7/8.
Computer networking company Cabletron Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %> sank $1 5/16 to $8 3/4 despite returning to profitability by reporting fiscal Q4 EPS of $0.01 a share (before charges), compared with a loss of $0.04 a year ago, with revenues up 11% year-over-year. Analysts projected a loss of $0.01. The company also announced a restructuring effort, called "Project Ignition," designed to save $80 million a year and "re-energize revenue momentum."
Digital smart card interfaces developer SCM Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCMM)") else Response.Write("(Nasdaq: SCMM)") end if %>, knocked down $5 7/8 yesterday after an article in the latest edition of Barron's raised concerns about the company's products and its market valuation, shed an additional $7 1/2 to $76 1/8 this morning.
Web address registrar Network Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSOL)") else Response.Write("(Nasdaq: NSOL)") end if %>, which will split its stock 2-for-1 after the market's close today, lost $1 5/8 to $243 1/8.
Analytical instruments company Thermo Optek <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TOC)") else Response.Write("(AMEX: TOC)") end if %> cooled $1 1/16 to $11 1/2 after it said President and CEO Robert Rosenthal resigned to become president of EG&G Inc.'s Instruments Strategic Business unit. ThermoSpectra Corp.'s CEO and President Barry Howe will fill in for Rosenthal while the company looks for a permanent replacement; both ThermoSpectra and Thermo Optek are subsidiaries of Thermo Instrument Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: THI)") else Response.Write("(AMEX: THI)") end if %>.
Computer-aided design and manufacturing software developer Parametric Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMTC)") else Response.Write("(Nasdaq: PMTC)") end if %>, which announced a $1 million order from Harris Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRS)") else Response.Write("(NYSE: HRS)") end if %>, nonetheless retreated $1 7/16 to $19 1/4.
The shares of two of last week's hot IPOs, damaged yesterday, continued to lose ground this morning. Online discounted airline ticket retailer Cheap Tickets <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTIX)") else Response.Write("(Nasdaq: CTIX)") end if %> gave up $2 7/16 to $24 3/16 after dropping $4 5/8 a day ago, while women's Web community operator iVillage <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IVIL)") else Response.Write("(Nasdaq: IVIL)") end if %> lost $5 to $65 3/4 to complement yesterday's $9 3/8 retreat.
Online services company America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> slipped $8 1/4 to $121 3/4 this morning. The shares advanced $10 3/4 yesterday following reports that it was considering a broad reorganization and may be about to face off with Web portal Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> and NBC, a division of General Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %>, in a bid for streaming media aggregator Broadcast.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BCST)") else Response.Write("(Nasdaq: BCST)") end if %>. Yahoo! fell $7 1/4 to $157 3/4 this morning.
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Contributing Writers Brian Graney (TMF Panic), a Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |