When companies have bad news to release, or uncomfortable stuff they would rather investors overlooked, they send it out after the market closes, often on the weekend, when fewer people are looking. This "cover of darkness" release may satisfy the letter of SEC disclosure regulations, but certainly not its spirit.
On New Year 's Day, as most of the country was recovering from bidding 2006 a fond adieu, Accentia Biopharmaceuticals
Looking at the report, one can see why this $110 million company chose such a late date to file its report. Revenues for the year fell to $25.1 million, down from the $25.2 million it reported the year before, marking the second year in a row for which the company has reported declining sales. At the same time, costs of sales have increased, resulting in declining gross profit margins.
Operating results have deteriorated as well. While Accentia has significantly increased its spending on R&D, administrative expenses have also risen, while marketing expenses have declined. That has led to significant losses in operating income -- the earnings a company makes from running its business. Operating losses are 16% more in the red than they were in 2005, at $36.6 million. The prospects for reversing those trends any time soon do not seem to be improving, even though the biotech relies heavily upon Cardinal Health
Accentia has primarily two products in its pipeline: SinuNase, a treatment for chronic sinusitis, and BiovaxID, a treatment for non-Hodgkin 's lymphoma. SinuNase has the potential to be a blockbuster drug for the company, since no competing products on the market allow patients to self-administer the drug. Accentia has received Fast Track approval for SinuNase -- one of the laundry list of highlights the biotech firm included in its press release in hopes of drowning out the financial results -- and it has also begun phase 3 clinical trials. BiovaxID is also in phase 3 trials and has received Fast Track status.
The company increased its cash on the books to $15 million, but did so through a combination of selling stock and taking on debt. That long-term debt, by the way, totals some $27 million, though the company says it plans to use at least part of any milestone payments it receives from its partners to reduce that total. And while part of the company 's plan for future growth is to acquire other products, one-third of its assets are composed of goodwill and other intangibles. Not the sturdiest of foundations. Add in that Accentia is bleeding cash -- its cash flow from operations improved, but only because of an increase in accounts payable and accrued expenses -- and it seems a difficult company in which to build confidence.
Its treatments sound promising, and should they win FDA approval, they could indeed prove a boon to Accentia. But for shareholders contemplating this investment, many unknowns could befall it. Clinical trials could fail, FDA approval could be withheld, and it might exhaust sources of funding before its products succeed in making it to market.
Releasing financial results into a long holiday weekend, hoping that the worst of it will go unnoticed, certainly does nothing to help build investor confidence, either.
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