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CEOCFO Monthly Analyst |
Analyst Industry Review December 2000 Biotechnology & Drugs Diagnostic Devices ANALYST INDUSTRY REVIEW Ms. Mya Wagle - Equity Analyst -
RedChip.com, Inc. Interview conducted by: CEOCFOinterviews.com December 2000 CEOCFOinterviews
- Give a brief career history. Ms. Wagle – “I
cover stocks in the Healthcare arena ranging from diagnostic devices to biotech companies. These are the sectors that I like to cover because
my background is as a trained Biochemist. I
have spent extensive time getting postgraduate work done in that area as well as business school.
I also spent some time with health regulators in state health departments and
insurance companies. I enjoy putting
everything that I’ve learned together in a package as an Equity Analyst at
RedChip.” CEOCFOinterviews - Can you take us
through the steps of what it takes a biotech company to bring a new drug to the market
place? Ms. Wagle – “The
steps that a company has to go through to bring a drug to market is as follows: they must
put it through an INDA or an investigational new drug application. After a few studies on it you then put in for
an NDA, which is a new drug application and in between all of that you have the clinical
trials, Phase I, Phase II and Phase III, with each clinical trial taking a minimum of
about twelve to eighteen months. So if
you’ve got an investigational drug application through the FDA, which normally takes
about four to six months, then you start your studies and your clinical trials, with every
Phase taking eighteen months, five years has just past right there. Once a study is over you have to put all of the
data together and focus on how you will plan the next study, because things may have
cropped up in that study which you will want to address in the next study. So there will be a period of about a four to six
month waiting period before you start the next study, in which you chew on the data and
then plan your next Phase. So that’s the
reason why it takes any biotech company a minimum of five to seven years to get a new drug
out, and most of these companies don’t turn profitable until about the second year
after they’ve started selling the drug.”
CEOCFOinterviews - Why do you like
the healthcare sector and why should an investor be interested in diagnostic devices and
biotech stock? Ms. Wagle – “When
I grew up my father always said that you make money for two reasons. One is to feed your family and the other is for
your basic health, because if you don’t have health you can’t enjoy anything
else that you have. The desire to help people
live longer may also be the reason why we have so many different areas of research, and
scientists tend to do research in areas that are of concern to them. In the twentieth century we’ve seen advances
in antibiotics and now drug resistant bacteria, with scientists trying to get to the drug
resistant bacteria through biotech means. We
also now have major advances in the understanding of the human DNA, with scientists trying
to get at the root of the cause of so many diseases.
So biotech becomes the key to the search for a solution to diseases.” “I
think investors should look at biotech stock because the companies are trying to get at
the root of the matter, but trying to get at the root of the matter is always longer than
going over it superficially. For example,
instead of just putting a band aid on a cut, or simply treating the symptoms, some
companies are researching into genetics to find out which genes could be responsible for
certain diseases. Once they get to a gene
that has gone wrong, they may try to correct the gene or create a compound in such a way
that it counteracts the effect of the malfunctioning gene. To do all of this requires many resources in
money and intellect, and in today’s capitalistic society, scientific research is done
by only a few people. There are more people
in business than there are in scientific research.
Not too many people are willing to put in those long pain staking days at the lab
bench, it’s almost like a labor of love, so they need support in their effort to try
to find the cause for diseases.”
“When it comes to biotech
stock, in terms of the research, clinical studies and getting approval for a new drug,
therapy or device before a company can even bring it to the market place, it is a long
process. I like to think of it, as, instead
of a mother going through a nine-month pregnancy, she has to go through it for nine years. A long term pregnancy and even longer labor
process, but at the end there is always that wonderful baby.” CEOCFOinterviews - What is the
upside and reward like for the investor who is willing to wait through this long process? Ms. Wagle – “The
upside can be unbelievable. Let’s just
take Amgen, Inc. (NASD: AMGN) into account. Amgen
has Epogen ® and Neupogen, and these are factors to help stimulate the production of your
red blood supply. Many times during surgery,
the patient loses blood-causing anemia. Well
there was no real solution to this problem until Amgen came along with a biotech product
that is similar to the one that your body produces and which could be injected into a
patient. Sometimes even a transfusion does
not work as well, because this is a purely genetic product that could save someone. It’s like a flashlight going off
when the product is finally on the market. We
can use it here, we can use it there, and so they generally find out that there are
multiple uses for it, even widening its market. If
the investor wants something worthwhile like a scientist working in the lab, working
towards this greater goal, the investor must be patient.
With biotech companies it’s not only the effort, the brain power and the
monetary resources, but it’s also like Edison said, “success is one percent
inspiration ninety nine percent perspiration”, and I think that statement which was
true at the beginning of the twentieth century, should be applied now at the beginning of
the twenty first century.” CEOCFOinterviews - What should an
investor look for in the management team of a biotech company? Ms. Wagle – “Of
the basic principals of investing, number one is that management has to be focused,
promoting from within and especially with biotech companies, the scientist have to have
creative license. They need an
entrepreneurial CEO who can look at the scientific as well as the business side of things,
because after the scientist has created a product, you need someone to sell it. Therefore, the CEO has to be alert in forming
relationships, especially with the smaller biotech company who will need to liaison with a
large pharmaceutical firm to bring a product to the market.
The CEO has to be
developing those helping hands
along the way and can’t wait
until he or she is at the end of Phase III to try and do this.”
CEOCFOinterviews - Which of the
companies that you follow, do you feel meet those criteria of having a strong management
team and forming those important alliances? Ms. Wagle –
“Targeted Genetics Corp. (NASD: TGEN), in Seattle has done a good job at forming
alliances. Their CEO Ms. Steward Parker has
been a fascinating ambassador, linking up with the big pharmaceutical companies these
days. They have an alliance with Biogen
Inc. (NASD: BGEN), one with Elan Pharmaceuticals (Elan Corporation, plc, NYSE: ELN) and
yesterday I received an email saying that they now have an alliance with American Home
Products. These are fabulous large companies,
who know how to sell, who know how to market to their target audience and they have a
sales force in place. This is what was
necessary for a small company like Targeted Genetics, which does not have any sales force. Targeted Genetics now has a product in Phase III
clinical trials, and along with Corixa Corporation (NASD: CRXA) were spin-offs of Immunex
Corporation (NASD: IMNX), also based in Seattle.” “Another company that I cover
called NeoRx Corporation (NASD: NERX), had problem with one of their products during a
Phase II trial and their stock dropped when the FDA stopped the study, but I believe they
will recover because of their management team. They
have a very sharp CEO, Paul G. Abrams. He is
an MD himself and a JD, so we have to realize that he knows the medical and the legal
implications. He’s a brilliant man who
is also very good at business, so he’s been able to nurture this company for the last
eight years. He’s facing a tough battle
to get this company up and going, but knowing him I’m sure he’s going to see
what went wrong and where.” CEOCFOinterviews - What other basic
principals of investing should be looked at when considering a biotech or diagnostic
device company? Ms. Wagle – “Of
the basic principals number one is management, number two is product, number three is
ensuring that they have the proper mechanism in place to nurture the product, and number
four would be numbers, such as earnings and sales, but to get those earnings and sales
they must have the proper mechanism.” CEOCFOinterviews - What aspects do
you consider when you look at a companies technology or product? Ms. Wagle – “One
of the important things that I look for when I decide to cover a company is the
technology. Where does the product fit? Will it add, will it be synergistic or will it be
just an addendum? I have a diagnostic company
that I follow, it’s not a biotech company, it’s called Cardio Dynamics (Symbol:
CDIC). I love that company, and I give them a
Strong Buy. Would you want a catheter
passed up through your groin for an angiogram or would you prefer four sensors placed on
your chest, and your heart condition monitored. I
would rather the sensors, and Cardio Dynamics. This
wonderful little machine has four sensors, two for the neck and two for the chest. You can get all of the heart parameters that allow
you to figure out what is wrong with the patients heart, using a noninvasive technology. GE is selling their product on the market.” “There’s another company called Imatron Inc. (NASD: IMAT) which I give a buy to, who used to have alliances with Seamans. For a couple of years they were almost treated like the pariah. Seamans dictated all of the terms and said they were going are going to sell your instrument this way and their marketing strategy was wrong. When Imatron distanced itself from Seamans it faced a tremendous uphill battle. In October, Opera had a show in which she had a complete heart condition diagnosis on the Imatron scanner. They have gotten about sixteen hundred calls per day now since that show, because there scanner is almost fifteen times faster than the GE scanner. What it does is it takes a picture of your heart and arteries in 3D slices, and it comes up with a calcium count. You might have a normal cholesterol and lipid level, but there might still be plaque in your arteries. The plaque deposition happens in conjugation with the lipids and the amount of calcium in your system. Therefore, Imatron came up with what is called the calcium score that indicates whether you have heart disease, or whether you have a predisposition towards heart disease. It’s almost a prognostic instrument. If you have a high calcium score, then you can change your life style so that you don’t develop a plaque deposition. They are now selling it by themselves, and they are doing a great job. They are turning profitable. They’ve just started marketing it themselves within the last year and a half. They have a fabulous World Wide sales VP, Jack Marquess, and President, Terry Ross who has invested about three million dollars of his own money into the company. They’ve been selling almost seven or eight instruments per quarter, and these instruments cost about two million dollars a piece. People don’t buy these instruments on a shopping spree, but they’ve been able to sell them and they are making money. Both Cardio Dynamics and Imatron have fabulous management. To me management is number one. Cardio Dynamics has dynamic management. They have the best thing for getting regulatory approval. I would say that they have the best mechanism for a small company that I’ve ever seen.” CEOCFOinterviews - Of the companies
that you cover, which are situated the best with their cash and credit. Ms. Wagle –
“Targeted Genetics has set up all of these alliances with these large pharmaceutical
firms who have very deep pockets. A Phase I
trial cannot only last about twelve to eighteen months but it can also cost anywhere from
one million to three million dollars. Therefore,
a biotech company needs a strong force of cash, to finance all of this Phase I, Phase II
and Phase III trials, all of these studies at these different hospitals, which expect to
be paid. For the small biotech companies
such as Abbott Laboratories (NYSE: ABT), Merk & Co, Inc. (NYSE: MRK), or Pfizer Inc.
(NYSE: PFE) , American Home Products (NYSE: AHP) can provide that. So, the alliances that Targeted Genetics has
made will prove to be very profitable in that they will be paid in mile stone payments. Many times there is an up front payment, a mile
stone payment, and then royalties and licenses along the way. What has happened with these large companies is
that they’ve gotten to the point where they have all of these successful drugs, and
other drugs in their R&D pipeline, but many of them don’t have the biotechnology
know how, in house. So the large companies
are giving out a helping hand to the smaller companies who are more entrepreneurial and
coming up with the new drugs, but need the money. The
large companies provide the money in an agreement, which allows them to license and market
the new technology. In a way, it proves to be
profitable for both and many times, if the small company is smart they will form these
alliances, because to get to the size of a Pfizer and a Merk, didn’t come within a
few years. They also have fabulous
distribution systems in place, to which the smaller companies don’t have any access. It would be easier for an Abbott or a Merk to sell
their liaison’s drug to a hospital or doctor because they generally will only have
ten minutes to make the sale and the doctor will most likely listen to the larger company
with the proven track record.” CEOCFOinterviews - Can you tell us
about ABAXIS, which is another diagnostic device company that you cover? Ms. Wagle –
“ABAXIS, (Nasdaq: ABAX) under Clint Severson and Don Parker have had the shrewd
management to guide them into the vet arena. They
have this little instrument, and they realized that they could get these little
instruments into the vet market without the chloride test.
They went in, capitalized and have done a fabulous job.” “There is plenty of room for
ABAXIS to grow in the Vet arena, and continue to build value. To get more instruments in there, with the passage
of time ABAXIS may have to make their prices more competitive, both for their instruments
and for their discs. Currently people are
buying their VetScan, a point-of-care blood analyzer because ABAXIS has made a name for
them, but as with any industry, there comes competition and the lowering of prices. They really have the advantage of gaining more
market share because of the quality of the product and the Vets like it. They have quite a few sales people of their own
along with distribution partners in Europe.” CEOCFOinterviews - What are your
recommendations for the companies that you cover? Ms. Wagle –
“ABAXIS is in the category of a Strong Buy because of the way that
they’ve garnered market share and increased production capacity. They are also establishing a customer service and
a technical service, which is very crucial when a company gets to the size that ABAXIS is.
Customers want the feeling of reassurance that there is someone, whom they can call; in
the case, that something goes wrong. Along
with the VetScan the customer must also purchase consumable rotors in order to analyze the
blood. Right now, they are in their new
production facility, which will allow them to meet customer demand for those rotors. That should do well for them in the Vet market. Their success in the human market depends on an
alliance with a big house and if they can add the chloride test which is necessary for
that market and have it approved”. “Targeted Genetics would be a Strong
Buy right now with all of their alliances. Their
products are in Phase II and Phase III trials, and they are making the right connections
at the proper time. They also have a good
R&D department headed by a strong Vice President, Barrie J. Carter, and Ph.D. You need all of these mechanisms in place before
you can go anywhere. For biotech investors,
it’s a long waiting process. Do not
expect any earning, do not expect any dividends, but the companies valuations generally go
up at the end of the Phase II and throughout the Phase III trials, and the stock can go up
tremendously.” CEOCFOinterviews - Are there any
other companies which you may have a buy or strong buy on? Ms. Wagle – “I
would like to tell you about IMPATH Inc. (NASD: IMPH). What IMPATH has done is that there are many
cancers, which are hard to diagnose in a small hospital or academic institution. With
cancer one of the important things is getting to the root.
To treat a cancer you have to know where the primary site of the cancer is. Many
times when you find a cancer it has started to metastasize. About fifteen percent of cancers in general are
what you would call tumors
of unknown origin. IMPATH is company, which
is made up of a group of pathologists and oncologist.
If you go into a small county hospital the oncologist or the family practice
physician, after sending the sample to their lab, still doesn’t know what the primary
origin of the tumor is, they can send the sample to IMPATH via FedEx. IMPATH with it’s team of pathologists and
oncologist gives it’s diagnostic and prognostic information on the cancer and gets
back to the physician in approximately about forty eight hours. With a tumor, the more aggressive the tumor is the
greater the chance that it will recur. The
slower growing tumors have a lesser risk of recurring.
In general, the maximum amount of money spent is when a tumor continues to recur. Therefore, the best thing would be to stop the
tumor at the very beginning and IMPATH with their service in diagnostics is a fast turn
around time. This fast turnaround time gives
these physicians the options of going ahead with an aggressive treatment for the tumor. Up front the treatment may be more expensive, but
if you can stop it from recurring, you will lower the long term cost, which could be
greater.” “IMPATH has that service and
they also have a huge database. It has linked
up with a large number of hospitals and has a whole database of diagnostic and prognostic
profiles, treatment and outcome data. So if
you want to look at certain outcome data, they can provide that information and hospitals
can license this software. The third arena
that they are in is because of all of the names that they have. IMPATH gets six hundred samples a day for testing. Therefore, their database is up to about six
hundred and fifty thousand cancer profiles in their database. Only five percent of cancer patients in the U.S.
are in that kind of clinical trial. What
IMPATH does is work with the biopharma companies, and helps them get the right patient
profiles into their clinical trials. Therefore,
it performs a service that is extremely unique. Because
of all of the profiles in it’s database it can for example, go to a Genentech, Inc.
(NYSE: DNA), and if they are doing a new study on breast cancer, IMPATH can offer the
names of ten women with the profiles that they are looking for. I think that is how IMPATH is building up their
business niche. It not only provides the
diagnostics and prognostic lab services, it also has a database of information and
it’s capitalizing on its database of information by providing it to the genomic
companies.” CEOCFOinterviews - And what is you
recommendation on them? Ms. Wagle –
“It’s a buy right now because their stock has been on a tear. It’s gone up eight to eighty in the last
eight months.” CEOCFOinterviews - What thought
would you like to leave the investment community? Ms. Wagle – “If investors buy a biotech or diagnostic device company at the end of Phase I trials, when you know the product is going to work, and they have the patients to wait for another six to seven years, it usually will pay off.” Technology
Technology Delphi Group Ten Post Office Square Carl Frappaolo Interview conducted by: CEOCFOinteriviews.com January 2001
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Accrue
Software |
ACRU |
Aether
Systems |
AETH |
Allaire |
ALLR |
Ariba |
ARBA |
Art
Technology Group |
ARTG |
Autonomy |
AUTN |
avantGO |
AVGO |
Blue
Martini |
BLUE |
Broadvision |
BVSN |
BackWeb |
BWEB |
Certicom |
CERT |
CacheFlow |
CFLO |
Calibur
|
CLBR |
Click2Learn |
CLKS |
Clarus |
CLRS |
Commerce
One |
CMRC |
Concur |
CNQR |
Centra |
CNTR |
Cognizant
Technology Solutions |
CTSH |
Citrix |
CTXS |
Docent |
DCNT |
Documentum |
DCTM |
Datalink.net |
DLK |
DigitalThink |
DTHK |
e-Business
Technologies |
EBTI |
eGain
Communications |
EGAN |
Elcom |
ELCO |
E.piphany |
EPNY |
Eprise |
EPRS |
Exchange
Applications |
EXAP |
Extensity |
EXTN |
FileNET |
FILE |
Freemarkets |
FMKT |
JetForm |
FORM |
Mentergy |
GICOF |
GoAmerica |
GOAM |
Geoworks |
GWRX |
Hungry
Minds |
HMIN |
HNC |
HNCS |
Hummingbird |
HUMC |
i3
Mobile |
IIIM |
iManage |
IMAN |
Informatica |
INFA |
Inktomi |
INKT |
IntraNet
Solutions |
INRS |
Infospace |
INSP |
i2
Technologies |
ITWO |
Interwoven |
IWOV |
Kana
Communications |
KANA |
Logility |
LGTY |
Metricom |
MCOM |
Mercury
Interactive |
MERQ |
Marimba |
MRBA |
Merant |
MRNT |
Net
Perceptions |
NETP |
Niku |
NIKU |
Net
Genesis |
NTGX |
Open
Market |
OMKT |
OmniSky |
OMNY |
Optika
Imaging Systems |
OPTK |
Openwave |
OPWV |
Open
Text |
OTEX |
Primus |
PKSI |
Provant |
POVT |
Purchase
Pro |
PPRO |
Persistence
Software |
PRSW |
Remedy |
RMDY |
Saba |
SABA |
SkillSoft |
SKIL |
SmartForce |
SMTF |
SilverStream |
SSSW |
ServiceWare |
SVCW |
724
Solutions |
SVNX |
Versata |
VATA |
VerticalNet |
VERT |
Vignette |
VIGN |
Vitria |
VITR |
Verity |
VRTY |
WebMethods |
WEBM |
WebTrends |
WEBT |
Extended
Systems |
XTND |
February 2001
Services
The Kriegsman Group - A
full service investment and merchant bank
that starts companies with their own capital
The
Kriegsman Group
11726 San Vicente Blvd., Suite 650
Los Angeles, California 90049
Phone: (310) 826-5449
Fax: (310) 826-5529
Steven A. Kriegsman
Analyst
Interview conducted by:
Walter Banks, Co-Publisher
CEOCFOinterviews.com
February 2001
CEOCFOinterviews - Mr.
Kriegsman, can you tell us about the Kriegsman Group?
"We take a very analytical
approach in looking at individual companies and studying the industry, but we are
basically interested in undervalued firms. Our
specialty is finding companies with stock prices under $10-15. We do merger and acquisition work; we arrange
strategic alliances; we assist both public and private companies with raising equity and
debt; we write research reports and help those companies in increasing shareholder value. Additionally, we manage money, act as advisors to
several fund groups and represent wealthy families interested in investing in the health
care sector. We have a number of excellent
professionals in the company, including managing directors and analysts, many with very
substantial educational backgrounds at some of the finest universities. One of our key people is an M.D., M.B.A., Ph.D.
out of Wharton and UCLA. We are able to
attract very talented people."
"In addition to being a full
service investment and merchant bank, we start companies with our own capital and move
them along to an IPO or a private placement. We
recently invested and started a genomics company, which we think will become one of the
most successful in the world. We put in a
total of $2 million, brought in a President, Chief Financial Officer, Chief Technology
Officer, a blue chip Board of Directors, including a Nobel Laureate in Medicine, Dr. Louis
Ignarro from UCLA. The Vice Chairman of our
Scientific Advisory board is Dr. Michael Hayden, one of the world’s leading genomics
experts. We think we will capture a
tremendous amount of market share in the genomics field, which right now, is a very
important field in biotech”.
CEOCFOinterviews - Will this be a public company?
Mr.Kriegsman: "Yes, we plan to go public shortly, either by merging into a
public company or raising more money and doing it the conventional way. The name of the
company is Global Genomics Capital, Inc. and I serve as the Chairman of the Board. The
full Board of Directors, Board of Advisors, management team, and all the principals have
made investmen