Is there a doctor in the house?

You in the white coat? You're a doctor? Great! No, ain't no one sick here yet, Doc. But stick around just in case. Cord-blood-storage specialist ViaCell (NASDAQ:VIAC) is due to report its Q2 2006 numbers tomorrow, and when that happens, it's not uncommon for people to fall ill.

What analysts say:

  • Buy, sell, or waffle? Four brave souls track ViaCell's fortunes. Two of them say investors should buy it despite the risks; the other two say hold off on buying for now.
  • Revenues. Sales aren't the problem; they're expected to rise 16% to $13.2 million.
  • Earnings. The problem is profits -- they're nonexistent. Analysts expect ViaCell to report a $0.12-per-share loss tomorrow, worse than last year's $0.08-per-share loss.

What management says:
Those continuing losses are why I was so pleased to hear CEO Marc Beer focus on the company's moneymaking umbilical cord-blood-storage business in last quarter's earnings release. ViaCell's losses, you see, are by and large a product of its research into the medical uses of stem cells contained in cord blood. Meanwhile, the lifeblood of the business -- if you'll pardon the pun -- is the firm's ViaCord storage unit. Last quarter, for example, this unit provided $11.9 million out of ViaCell's total $12.1 million in revenues.

That said, expanding ViaCord does come at a cost: selling, general, and administrative expenses (SG&A), which last quarter rose more than twice as quickly as sales. Arguably, that could be because much of the money spent on SG&A went to hire new salespeople to market the company's cord blood storage, and those salespeople need more than just a few weeks to begin making sales. They've now had an extra three months to start doing so, though, so we'll be looking especially hard at sales growth tomorrow.

What management does:
When it comes to margins, you can't say much good about ViaCell. Rolling operating and net margins are both negative, have been for a while, and promise to remain so for some time yet. Gross margins, on the other hand, look pretty good -- until you notice where they've been heading lately (namely, down.)

Margins %




























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

The Fool says:
ViaCell is the quintessential "speculative" investment. No profits in its past, none in its present, and anyone's guess whether they will materialize in its future. While I won't say a Fool shouldn't invest in the company -- especially not with ViaCord's cash cow hidden away within the folds of the company's SEC filings -- I do encourage Fools to take a cautious stance with this one, putting in only as much as they can afford to lose.

Meanwhile, as we proceed through the coming quarters (and hopefully toward profitability), watch three factors in particular:

  • Stock dilution. The more of it that happens between now and whenever the company starts earning profits, the less of those profits you'll share in.

  • Revenues. ViaCell's spending a lot trying to make some sales. Let's make sure those sales get made, and that revenue growth at least matches the growth in SG&A.

  • ViaCord. In this Fool's opinion, it's the only part of this company worth cash money at present. You won't learn much about it from tomorrow's earnings report, but keep a sharp eye out for the subsequent 10-Q filing, which will contain more detail on the unit, as well as a cash flow statement on the whole shebang.


  • Aastrom Biosciences (NASDAQ:ASTM)
  • Celgene (NASDAQ:CELG)
  • Cytori (NASDAQ:CYTX)
  • Genzyme (NASDAQ:GENZ)
  • StemCells (NASDAQ:STEM)

Further reading material available in the science lab. Try:

Let David Gardner give your ailing portfolio a shot of growth, courtesy of Motley Fool Rule Breakers . David and his team track cutting-edge med-tech companies in their search for the next ultimate growth stock, and you can join them with a free 30-day trial.

Fool contributor Rich Smith does not own shares of any company named above.