A New Solution for an Old Problem

12/01/2006 12:00 am EST


Jim Collins

Chairman and CEO, Insight Capital Research & Management, Inc.

Known for his fearless examination of businesses' on the cusp of a potential breakthrough, veteran investor Jim Collins often finds rare opportunities for getting in on the ground floor. Here, he presents such a prospective opening.

"MedImmune's(MEDI NASDAQ GS) currently marketed influenza vaccine, FluMist, is now made using chicken eggs, as are all other US-approved influenza vaccines. However, using chicken eggs as the production medium limits scalability in manufacturing and increases the potential risk of manufacturing delays or supply shortages. A severe outbreak of avian influenza could kill the flocks used to produce the eggs that would be used for vaccine production.

"On November 9, MedImmune filed an investigational new drug application with the FDA to begin human clinical testing of a cell culture-based seasonal influenza vaccine using its proprietary live, attenuated, needle-free influenza vaccine technology, without the need for chicken eggs. This technology will reduce production times and substantially increase MedImmune's US-based manufacturing capacity, to 300 million monovalent bulk doses of a pandemic vaccine annually by 2012.

"For the third quarter, revenues increased 15% to $177 million from the same quarter a year ago. Product sales accounted for 90% of total revenues in the third quarter with $112 million in revenues coming from Synagis. The company's net loss was $73 million, or $0.30 per share, compared to a net loss of $61 million, or $0.25 per share, for the same period a year ago. The company receives most of its revenue and profits during the fourth and first quarters in response to the flu season. MedImmune is in a very strong financial position with $1.5 billion in cash and marketable securities as of September 30, which is essentially unchanged from a year ago.

"The stock declined sharply during the first half of the year, but has been recovering since August and is now trading near a six-month high. Daily volume has been increasing and is averaging approximately 4.5 million, or 1.1% of the float. Institutions own 47% of the shares available for trading, while management owns 4% of all shares. MedImmune receives an A- for accumulation/distribution and has a relative strength of 61.

"Sales of the company's two main products, Synagis and FluMist, are seasonal in nature. Synagis sales occur primarily in the first and fourth quarters of the calendar year and FluMist sales occur primarily in the second half of the calendar year. This high concentration of product sales in a portion of the year causes quarter-to-quarter operating results to vary widely."

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