Omrix Biopharmaceuticals (NASDAQ:OMRI) reported a severe decline in profits yesterday, but investors in this Rule Breakers pick could see right past the bleeding: The stock closed up 2% yesterday.
Product sales plummeted 34% year-over-year for the second quarter. Most of that decrease was expected, since, in the second quarter of last year, Omrix supplied the U.K. government with $4.5 million worth of vaccinia immunoglobulin (VIG), which treats complications related to the smallpox vaccination, and this revenue source didn't carry over into this quarter.
The bottom line was even worse, with a 71% decrease in profits over the second quarter of 2006. The company had been expecting to receive FDA approval in the second quarter to use Cryoprecipitate (cryo) made by Talecris Biotherapeutics in the production of Omrix's surgical sealant, Evicel. It went ahead and made $1 million worth of the product, but the FDA didn't approve the marketing change until last month. Omrix shipped the product in the third quarter, so the sales won't be recognized until this quarter.
The change in production is a positive move for Omrix because now it won't have to worry about procuring human plasma to manufacture Evicel. This is good because human plasma is a fairly scarce resource. It's unfortunate that the FDA took so long to approve the change, but it shouldn't be a problem going forward.
The stagnant sales shouldn't last much longer. In May, the FDA expanded the labeling indications for Evicel to include stopping bleeding in vascular surgery; previously, it was approved for only liver surgery. Omrix's marketing partner, Johnson & Johnson's (NYSE:JNJ) Ethicon subsidiary, has already started marketing the product to vascular surgeons. Omrix is trying to expand Evicel's use even further to include all surgeries, and has already submitted applications in the U.S. and Europe. It expects to hear the results of the FDA application in the beginning of next year.
Speaking of FDA approvals, Omrix is also waiting to hear in September about its thrombin product, which is also designed to stop bleeding during surgery. If approved, it may have to compete with Zymogenetics' (NASDAQ:ZGEN) recombinant thrombin, which has a Prescription Drug User Fee Act (PDUFA) date a month later.
I think investors were right to look past this quarter's lackluster results. Omrix' future looks bright and it's clear that approvals of Evicel for all surgeries and of thrombin will stop the bleeding in more than one way.
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Johnson and Johnson is an Income Investor selection.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.
