OK, get out the barbecue sauce. It's time to roast this observer.
Back on July 30, 2004, I was throwing respect at Flamel
Let's make a very long story very short. The three analysts following the company today expect the company to lose between $0.48 and $1.05 in 2005 and tack up another loss next year in the range of $0.39 to $0.78 a share. Yikes! Is that smoke in my eyes, or am I just welling up with tears?
The primary problem with Flamel is that it doesn't have any products using its Micropump or Medusa drug delivery technology on the market. Product sales and services for the third quarter were $458,000, down 47.7% from the comparable quarter a year ago.
For now, license and research revenue is driving the business. That's an admittedly lumpy revenue stream, but it was enough in 2004 to produce a profit of $0.51 a share. For the third quarter, though, that revenue stream is down 80.9%. For the first nine months of 2005, it's down 54.3%.
So, what went wrong? First, there are two failed micropump partnerships with Biovail
Is Flamel dead meat, ready to be smoked? Hardly! GlaxoSmithKline
Still, if this product does get to market, it provides a real-world FDA-approved implementation of Micropump technology. That's what Flamel needs to put its failures behind.
Also in the pipeline is an undisclosed Micropump drug for Merck
So let's head back to the barbecue and wrap up. Flamel, when I was heaping respect on it, was changing hands for $18.85 a share. After all of the failed projects, and the less-than-robust results for the third quarter announced Thursday, the company is trading for . $17.68 a share? So why isn't the stock lower?
Well, Flamel, for all of its woes, still has two savory aspects. First, there is $89.4 million in cash and marketable securities and a tiny $2.8 million in debt. That means the company has the cash to fund its own fate, and starting in 2007, the chances are better than ever that there will be drug delivery product sales to cut the cash burn rate. Second, Flamel has only 22.4 million shares outstanding. That's a small float for a company which, if successful, could produce excellent profits.
So, I was wrong! Yes, I was downright wrong. The risk of failed projects was not my focus a year ago. That was wrong of me.
But I still think it's premature to get excited about Coreg. The annual royalty revenue that Flamel would receive may only just cover the company's current operating expenses.
Flamel has interesting technology that has failed to garner much drug industry support. For now, profitability is not on the foreseeable horizon. Although this company has been recommended twice by the Motley Fool Hidden Gems newsletter, it is, in this observer's opinion, a tasty story that just needs more time to develop.
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Merck and GlaxoSmithKline are recommendations of the Motley Fool Income Investor newsletter.
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