Opaque Omrix Disappoints

I'm starting to get a little suspicious of companies that release revenue -- but not earnings -- early in the quarter. Earlier in the year, SonoSite (Nasdaq: SONO) released strong revenue growth, only to report weak earnings a month later. Yesterday, it was fellow Rule Breakers pick Omrix Biopharmaceuticals' (Nasdaq: OMRI) turn to disappoint.

You'll recall that Omrix's product sales in the fourth quarter were up 11.5% versus the year-ago quarter. That's pretty impressive, considering the company didn't have any vaccinia immunoglobulin (VIG) sales this year. VIG sales tend to be sporadic, since they're sold under government biodefense contracts.

The revenue growth wasn't enough to overcome higher costs, though. Both research and development (R&D) and selling, general, and administrative (SG&A) costs increased by more than 70% year over year in the fourth quarter. Those costs pushed Omrix's earnings lower, to just $0.19 per share, compared to $0.41 per share in 2006.

While I'm not worried about the increase in R&D costs -- those should pay for themselves down the line -- the skyrocketing SG&A costs are certainly cause for concern. The company did acknowledge that SG&A expenses were high in the fourth quarter, but said that 2007 as a whole should be used as a "base" for financial modeling purposes.

While missing the bottom line caused some of the drop in stock price, yesterday's 40% drop can also be attributed to the company announcing that it didn't receive a contract to sell VIG to the French government. While Omrix didn't have that in its guidance, it looks like many investors had factored in at least the chance that the company would get the contract.

Omrix's other problem is that its business isn't very transparent; I counted seven different times that the company declined to answer analyst questions during yesterday's conference call. It doesn't break out the sales of its products, so it's a little hard for investors to know how the company (with its marketing partner Johnson & Johnson (NYSE: JNJ)) is doing in its thrombin war with entrenched leader King Pharmaceuticals (NYSE: KG) and newcomer ZymoGenetics (Nasdaq: ZGEN).

Even with yesterday's disappointing results, I'm not sure Omrix shares' monster drop was justified. Omrix is expecting product sales growth between 23% and 29% next year. Assuming the bottom line grows at just 20% because of higher R&D costs, that puts 2008 earnings at $0.83 per share. Investors that were thinking about buying Omrix can now pick up the company at a sub-20 forward P/E.

Let's just hope that Omrix decides to hold its revenue number until it's ready to give us the full picture next quarter.