.comment-link {margin-left:.6em;}

Tuesday, May 23, 2006

Pharsight (PHST)

PHST (sec) Software and consulting services for pharm and biotech companies to improve efficiency of drug development decision making process. Clinical trials, simulation, computer-aided trial design, statistical analysis, etc.
Thirteen of the world’s largest 50 pharmaceutical companies utilize our strategic consulting services, the world’s largest 50 pharmaceutical companies apply our computer-assisted drug development products, and our software applications are currently licensed for use on more than 3,700 researcher desktops.
Seems like a reasonable business to be in. If you look at their 10-K page 16, you see a tough, but solid uphill climb. Revenues have been increasing each year until they hit a wall this year. Gross profits are going up. Total operating expenses are coming down dramatically (could be bad). They had huge losses in 2001 and finally reached profitability in 2005 (Q4 2004), but with preferred stock dividends and significant people on the totem pole above common stockholders. The equity got burned off to the point where they're at a deficit.

2003: $14.0 million (see 10-K, page 16)
2004: $17.7 million
2005: $22.6 million
2006: $22.7 million (see link below)
2007: $25.5 million (company's projection)

Results for Q4 ended March 31, 2006
They had a net loss for the quarter (vs profit in 2005) and for the year.
Revenues have declined in Q4 due to a drop in service revenue, caused by a slowdown in new projects at one of the larger customers and "a shift this quarter in the revenue dependency away from our two largest customers (translation: their biggest customers are doing less business with them).
R&D costs are up.
Sales and marketing costs are up.
G&A costs are up.
These costs are considered investments by the company.
For they year, they would have had a slight profit, except for the preferred stock dividend. The pfd shareholders can elect to be paid in preferred shares instead of cash (ugh!).

Balance sheet is surprisingly strong. More than 60% of the assets are cash. The current ratio is a bit greater than 1 with the largest curr liability being deferred revenue. However, the shareholder deficit is 15% of total assets.

Projections for the year ahead:
Revenue growth of 10-15% based on the pipeline of software deployment and projects and contracts.
Roughly the same gross margins.
Net income on the order of $1.2 million (subtracting a pfd dividend of $700K from the 7.5% net income on the 12.5% revenue growth estimate).
I'm guessing it would be around 6 cents per diluted share assuming the share count remains fairly constant, but that might not be considering convertables very well.
Expect weak cash flow.

Common shareholders here have it tough, and depending on the deal with the preferred shareholders, they might gain very favorably from any continued improvement in the business. However, the stock is selling for around $1.35 and it seems fully priced.
continue following

Comments: Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?