Download SCOLR, Inc,

21 Manzanita Avenue #1000 · San Rafael, CA 94901 · Tel: (415) 454-6985 · Fax: (415) 455-0295
D. Paul Cohen, President · www.cohenresearch.com · E-mail [email protected]
SCOLR, Inc,
DDD (Amex)
$3.24
April 19, 2004
BUY
Intermediate Term Target Price Range
$6.96
Quarterly and Annual EPS Reported and Estimated EPS*
* All forecasted estimates are made by Cohen Independent Research Group, Inc. (CIRG)
and have not been reviewed or approved by the company.
Mar
Jun
Sep
Dec
FY
EPS
EPS Growth
2002
-0.04
-0.02
-0.03
-0.04
-0.13
FY05
-$0.04
2003
-0.02
-0.03
-0.06
-0.31
-0.41
FY06
$0.01
117.9%
2004 E
0.00
-0.01
-0.01
-0.01
-0.03
FY07
$0.14
2005.5%
(This report may not be reproduced.)
2005 E
-0.01
-0.01
-0.01
-0.01
-0.04
FY08
$0.33
135.3%
Cohen Independent Research Group
SCOLR INC
DDD
Fiscal Year:
Industry:
Input Price:
Exchange:
2003
Last Report Date:
#VALUE!
MED-BIOMED/GENE
Next Report Date:
/-/-
3.25
Sales - LTM:
PE Next 12M consensus Frc:
Market Cap based on Input Prc:97.7
Dividend Payout Rate:
AMEX
#REF!
6,594.1
Sales Growth - LTM:
1.2%
EPS Growth - LTM:
#REF!
EBITDA Growth - LTM:
#DIV/0!
Dividend Yield:0.00%
Dividend Growth - LTM:
#DIV/0!
SCOLR Inc. is a biopharmaceutical company leveraging specialized knowledge, proprietary and patented products and technologies, such
th
t t d CDT® C t ll d D li
T h l
l tf
t i t d
di ti ti
d
l OTC
d t
i ti d
d
Share Data & Employees
Latest
Sell-Side Target Prices
Latest
Shares Outstanding (million)
29.89
Number of Employees
Price & Volume ( USD )
10
Today
Price
0.00
# of Analysts in Price Target Consensus
0.00
Price Related ( USD )
3.25
Price Date
Mean Short Term Target Price (6-12 mos)
4/20/04
Market Capitalization on 04/20/04
Today
97.14
Price to Cash Flow
12M High (closing price)
$3.97
Price to Sales
10.6
12M Low (closing price)
$2.99
Price/Book (Sharehldr Equity)
22.8
52 Week % Price Change
0%
P/E, 12 Month Forward Consensus Est
0.0
Daily Average Volume (20 days)
120,565
P/E, using 12M EPS
0.0
Daily Average Volume (60 days)
110,167
P/E 12M 5Y Average
0.0
Financial Strength
Latest Available
Quick Ratio
0.84
Current Ratio
Latest
Basic EPS - LFY
-$0.41
Diluted EPS - LFY
-$0.41
LT Debt/Equity
0.00%
Diluted EPS (before non-recurr) - LFY
-$0.41
Total LT Liab/Total Capital
1.21%
Sales per Share - LTM
Profitability Ratios
Operating Margin - LFY
1.34
Per Share ( US$ )
LFY & Latest Qtr
#REF!
Net Margin - LFY
$0.31
#REF!
Book Value per Share - LQ
$0.14
Tangible Book Value per Share
$0.13
Operating Margin - LQ
#REF!
Tangible Assets per Share
$0.24
Net Margin - LQ
#REF!
Cash per Share - LQ
$0.06
Cash Flow per Share - LTM
$0.00
Income Statement
-132.58%
Dividend Payout Ratio
Latest 12 Months
Management
Latest
ROE - LTM
#REF!
ROI -LTM
#REF!
Pretax Earnings - LTM
ROA - LTM
#REF!
Net Income -LTM
Balance Sheet (USD)
Latest
Net Income, Excl Extra. Items
Cash
1282.66
Diluted EPS -LTM
Tangible Assets
5148.53
Total Assets
5507.94
Revenue -LTM
6594.07
EBITDA Margin -LTM
Income Statement - Quarter
0.00%
Dec 03
Revenues - LQ
Ownership
1,173.19
EBITDA Margin - LQ
0.00%
Institutions Own % Shares Out
Insiders Own % Shares Out
Pretax Earnings - LQ
#REF!
Short Interest - LM
Net Income
#REF!
Short Interest - 1M ago
Diluted EPS - LQ
#REF!
% Change Short Interest - 1M
Dividend Yield
0.00%
Short Ratio
Latest
0.13
0
247,829
8,882
2690.24
2.27
Cohen Independent Research Group
TABLE OF CONTENTS
THE COMPANY .......................................................................................................................................2
Company History .............................................................................................................................................. 2
Bull Case........................................................................................................................................................... 2
Bear Case ......................................................................................................................................................... 3
Controlled Drug Delivery................................................................................................................................... 3
Recent Events................................................................................................................................................... 4
Rationale for Developing Controlled Delivery Dosage Forms .......................................................................... 5
Table 1.......................................................................................................................................................... 6
THE SCIENCE BEHIND THE PRODUCTS..............................................................................................6
Introduction ...........................................................................................................................................6
Why Programmable, Slow Release Drug Delivery Is Important ....................................................................... 6
Figure 1......................................................................................................................................................... 7
Figure 2......................................................................................................................................................... 8
Review of Delivery Technologies - How diffusion, reservoir, swelling control relate to DDD’s technology...... 9
Desirable Characteristics for Controlled Delivery ........................................................................................... 10
Figure 3....................................................................................................................................................... 10
CDT and How It Works ................................................................................................................................... 12
Advantages of the CDT Platform .................................................................................................................... 13
Developed CDT Products ............................................................................................................................... 13
Table 2........................................................................................................................................................ 14
Industry Demand for Sustained Release Technologies ................................................................................. 15
Industry Demand for Controlled Release Systems......................................................................................... 16
Recent Business Segment Performance........................................................................................................ 17
Sale of Manufacturing Unit.............................................................................................................................. 17
Glucosamine & Chondroitin ................................................................................................................17
Licensing, R&D and Royalties ........................................................................................................................ 19
Alliance with ADM ........................................................................................................................................... 19
CAPITALIZATION ..................................................................................................................................20
Q3 Quarterly Report 9/30/03........................................................................................................................... 21
CASH FLOW ANALYSIS .......................................................................................................................22
Risks ............................................................................................................................................................... 23
Looking Forward ............................................................................................................................................. 23
VALUATION ...........................................................................................................................................24
Table 3........................................................................................................................................................ 25
CONCLUSION........................................................................................................................................25
APPENDIX .............................................................................................................................................27
THE COMPETITION...........................................................................................................................27
The Pharmaceutical Drug-Delivery Market..................................................................................................... 27
GLOSSARY............................................................................................................................................29
DISCLAIMER: ........................................................................................................................................31
FINANCIAL STATEMENTS ...................................................................................................................32
i
Cohen Independent Research Group
SCOLR, Inc.
DDD $3.24 AMEX
provides it with the ability to work with insoluble
and poorly soluble compounds, which account for
over 40% of all newly discovered drugs and a large
number of existing drugs.
___________
THE COMPANY
SCOLR, Inc. is building its future as a specialty
pharmaceutical company in the oral drug delivery
industry. It has developed/licensed several novel
and patented sustained release drug delivery
technologies for the pharmaceutical, over-thecounter (OTC) and nutritional supplement
industries. This includes the rights to three patented
oral drug delivery technologies. Until January,
2004, the Company had historically been a
developer and manufacturer of probiotics. SCOLR
recently completed the sale of this business in order
to become a pure play in the larger and growing
specialty pharma / drug delivery marketplace.
*
Words in bold are defined in the glossary at the end of this
report.
Company History
The Company was incorporated in 1994 under the
name Caddy Systems, Inc. From April, 1995 to
July, 2002, the Company operated under the name
Nutraceutix, Inc. In July, 2002, the Company
changed its name to SCOLR, Inc, which is an
acronym for Self Correcting Oral Linear Release.
The current name more adequately reflects the
Company’s focus on the specialty pharma / drug
delivery business.
Sustained release technology platforms allow for
programmed release of drugs or supplements when
taken orally.
For a large number of active
compounds, immediate release formulations may
lead to undesirable effects, often resulting from rapid
release and elimination in the body. This “burst”
and “tailing” effect is minimized or eliminated with
SCOLR’s patented controlled delivery technologies
(CDT). The first supplement using this technology
(glucosamine/chondroitin) was introduced in Canada
in 2002, and is now sold in more than 6,000 U.S.
retail outlets including Wal-Mart, Rite Aid, Trader
Joe’s and GNC stores.
SCOLR is pursuing
additional strategic alliances to incorporate the CDT
for licensing and/or manufacturing of nutritional
supplements, in addition to ethical and over-thecounter drugs. Health supplement application of
CDT will continue to provide increasing near-term
revenue. The home-run potential, however, lies in
the OTC and prescription drug applications. In
addition, SCOLR’s most recent patent (amino acids)
Bull Case
2
•
Oral administration is the preferred method
of delivery for pharmaceutical drugs, OTC
products and nutraceuticals because it is less
expensive and more convenient than
injections or intravenous infusions.
•
DDD’s technology results in increased patient
compliance to the treatment regimen,
improved safety of the drug, improved efficacy
of the drug and greater efficiency of drug
delivery.
•
DDD has the rights to three patented oral drug
delivery technologies.
•
The home-run potential targets massive markets:
OTC and prescription drug applications.
Cohen Independent Research Group
•
•
SCOLR’s CDT technology platform provides a
programmable platform that is recognized,
simple, easy to manufacture, and a low cost
alternative methodology to deliver therapeutic
agents over a wide range of profiles.
•
SCOLR’s CDT platform includes the unique
‘self-correcting’ feature, which enables the
system to correct for the release rate and
erosional impact among many other features.
•
The benefits to the pharmaceutical manufacturer
may also be the extension of a patented
products’ life cycle by creating an extended
release formulation.
This is a significant
incentive in a pharmaceutical market estimated
to be worth over $50 billion U.S. dollars
annually.
•
Bear Case
The market for drug delivery technology is
expected to reach $29.2 billion in 2005, a 46.7%
increase from the $19.9 billion in 2000.
The amino acid-based technology of DDD’s
third patent is designed to transport and control
the release of poorly soluble drugs that are
difficult and costly to formulate with existing
approaches while providing DDD the ability to
work with insoluble and poorly soluble
compounds.
•
SCOLR has transitioned from providing a
solution to an existing need, to providing a
solution to a broad range of existing and
emerging needs in the industry.
The Company will ultimately require additional
financing to implement the development of its
drug delivery business. Funds will be required
for Research & Development and to
commercialize drug delivery products.
•
The Company will partner with other companies
to share in the cost of these projects. Without
partners it will need to use its own capital to
develop products. Future financings may not be
available.
•
Pharmaceutical re-formulation with controlled
delivery systems requires FDA approval. It is
uncertain if those drugs will receive approvals in
a timely manner.
•
Future financing would cause dilution to current
shareholders
Controlled Drug Delivery
For a product that is not a prescription drug, a
patented delivery system can both lengthen a
product life cycle and add product
differentiation. An advantage for retailers is the
increased product sell-through (in comparison
with comparative immediate release products)
that results from fewer consumer missed
dosages
•
•
For the past several years the Company’s primary
focus has been on developing and optimizing its
CDT platform. Applications include nutritional
supplements, nutraceuticals (biologically active
materials), ethical drugs (branded and generics),
over-the-counter and pharmaceuticals.
In 1998 SCOLR exclusively licensed a patent
pending controlled drug delivery technology from
Temple University School of Pharmacy for the
specialty nutritional and sports supplements
industries. This was the first step in the transition to
bring drug delivery technology to the Company.
Since then, SCOLR has acquired worldwide
rights/licenses to the first patent, which was
subsequently issued. The Company has expanded
its technology platform with two additional issued
patents and is currently developing others.
Currently there are three patents within the platform
of technologies. The “electrolyte” platform and
“dual polymer” platform patents issued in 2001 and
3
Cohen Independent Research Group
prescribed ingestion plan, and/or enhanced safety
from a lack of excessive dosing. The benefits to the
pharmaceutical manufacturer may be the extension
of a patented products’ life cycle by creating an
extended release formulation and/or adding value.
In our experience, the nutritional supplement
product life cycle is inherently much shorter
primarily due to a highly fractured market with
tough competition and poor product differentiation.
With the lack of branding for many nutritional
compounds, product differentiation with a patented
delivery system can both lengthen a product life
cycle and add product differentiation. An advantage
for retailers is the increased product sell-through (in
comparison with comparative immediate release
products) that results from fewer consumer missed
dosages.
2002 respectively and are exclusively licensed to
SCOLR from Temple University. In January of
2003, the Company received its third drug delivery
patent which is for an amino acid-based technology.
This third patent (“amino acid”) is significant from
both a business and a scientific standpoint. It is the
first patent assigned directly to the Company,
drawing attention to the quality of its research. It is
also important because it answers an urgent and
current need of the pharmaceutical industry. The
amino acid-based technology is designed to transport
and control the release of poorly soluble drugs that
are difficult and costly to formulate with existing
approaches.
With the development of this
technology, SCOLR has transitioned from providing
a solution to an existing need, to providing a
solution to a broad range of existing and emerging
needs in the industry.
Recent Events
There are several methods of oral controlled
delivery, the majority of which have evolved from
proven and common practices over 40 years ago.
SCOLR has gone back to the beginning and
developed a technology which is rooted in
hydrophilic systems, the most widely applied and
understood form of drug delivery. SCOLR’s CDT
technology provides a recognized, elegantly simple,
easy to manufacture, low cost alternative
methodology that is programmable to deliver
therapeutic agents over a wide range of profiles.
Therapeutic profiles can differ in duration,
solubility, payload, and therapeutic window, or the
optimal range of the API (active pharmaceutical
ingredient).
Several widely used technologies
contain some of these capabilities -- but at a
materially higher cost -- and each of these
technologies has important limitations(s). (See
competition section.)
4/5/04 – SCOLR identifies 12-hour ibuprofen as first
internal development target for application of its
CDT platform. For the first time, the Company will
simultaneously pursue additional potential drug
delivery development relationships and accelerate
the development of CDT-based products by
independently selecting targets for development on
its own timetable.
3/23/04 – SCOLR files 10-K for the year ended
12/31/03.
2/24/04 – SCOLR completes $10.4 million
institutional private placement of common stock and
warrants to accelerate its drug delivery development.
Use of proceeds allows the Company to
simultaneously pursue multiple routes towards
bringing its patented CDT technology to market in
the form of OTC products and prescription drugs.
Using a controlled release formulation for some
drugs or supplements has several distinct
advantages. Benefits to the patient may include
improved efficacy, better compliance with a
2/23/04 – CDT glucosamine/chondroitin available in
GNC stores.
4
Cohen Independent Research Group
C,
glucosamine
hydrochloride,
glucosamine/chondroitin/MSM,
glucosamine
hydrochloride-sulfate complex, and caffeine.
2/6/04 – SCOLR’s stock trades on the American
Stock Exchange.
1/20/04 – SCOLR closes sale of Probiotics under the
terms previously announced.
10/08/03– SCOLR announced the operation of a
new R&D laboratory and administration complex.
1/5/04 – SCOLR signs Asset Purchase Agreement to
sell its probiotics development and manufacturing
business for $2.72 million. The sale will position
DDD as a pure play drug delivery company and
allow it to focus all its attention and assets on the
potential offered through its portfolio of patented
CDT technologies.
10/08/03 – SCOLR files 10Q for the quarter ending
6/30/03.
9/30/03 – SCOLR receives notification from the US
Patent and Trademark Office of the issuance of a
patent, “Tablets Containing Heat Sensitive Materials
and Method for Forming Thereof.”
12/13/03 - SCOLR expands CDT line with the order
for two new health supplement products, 12-hour
Niacin and 12-hour EsterC®. The Company expects
orders for several other new CDT supplements in
Q1, 04.
9/02/03 – David T. Howard, the former President
and CEO, is named Chairman of the Board.
8/8/03 – Daniel O. Wilds is announced as the new
CEO and President. Previously Mr. Wilds served in
Vice President and President roles at Baxter
International (NYSE: BAX). He has also held
President and CEO positions in three early stage
health care companies.
11/21/03 – SCOLR announces the successful
completion of Feasibility Study and its acceptance
by its Fortune 100 client. SCOLR is in negotiations
with the same client to initiate feasibility studies on
several other candidate compounds.
Rationale for Developing Controlled
Delivery Dosage Forms
11/12/03 – SCOLR announced the appointment of
two new Board members, Dr. Reza Fassihi and
Robert C. Schroeder, and the retirement of Board
member, Daniel B. Ward. Dr. Fassihi is Professor of
Biopharmaceutics and Industrial Pharmacy, Temple
University, School of Pharmacy, and the inventor of
the CDT technology. SCOLR exercises its right to
force conversion of $5.3 million in Notes into
common stock.
There are both medical and marketing reasons
for developing drugs in controlled-versus
immediate release dosage forms (Table 1).
Improving the delivery of drugs to the system can
lower dosage requirements, enhance the safety and
efficacy of the drug, and reduce the cost of the drug,
in part by eliminating waste. Market reasons for
developing improved drug delivery technology
include extending patent protection on a drug and
increased revenue—a significant incentive in a
pharmaceutical market estimated to be worth over
$50
billion
U.S.
dollars
annually.
11/6/03 – SCOLR reported on the successful
presentations made at AAPS (American Association
of Pharmaceutical Scientists) conference made in
association with Dr. Reza Fassihi.
1/5/03 – SCOLR announced the expansion of its line
of CDT nutritional supplements with the
introduction of six new products: Vitamin C, Ester
5
Cohen Independent Research Group
Table 1
Rationale for Developing Controlled Delivery Dosage Forms
MEDICAL BENEFITS
MARKETING BENEFITS
•
•
Increased patient compliance to
the treatment regimen
Preference of the pharmaceutical
market for fewer doses
Improved safety of the drug
Patent extension
Improved efficacy of the drug
Product differentiation
Greater efficiency of drug delivery
Greater rate of return on investment
SCOLR’s CDT platform includes the unique ‘selfcorrecting’ feature, which enables the system to
correct for the release rate and erosional impact
among many other features. “Depot” formulations
may provide treatment for a month (e.g., Lupron
Depot), and implants may provide drug for as long
as five years (Norplant). Other delivery routes
include buccal, inhalable, injectable and transdermal
solutions.
THE SCIENCE BEHIND THE
PRODUCTS
Introduction
Although drugs may be delivered via various routes,
oral administration is the preferred method of
delivery for pharmaceutical drugs, OTC products
and nutraceuticals because it is less expensive and
more convenient than injections or intravenous
infusions. The tablet or capsule dissolves, typically
in the stomach. The active ingredient can then be
absorbed into the bloodstream and is carried to
tissues throughout the body. “Controlled delivery”
of oral drugs is the process of regulating the duration
or timing of the release of a given active ingredient
(i.e., the medication, vitamin, etc.) from a dosage
form. These can be achieved in a variety of ways.
Some terms used to describe types of controlled
delivery may include but are not limited to; timed-,
prolonged-, sustained-, and extended-release. These
types of delivery all extend the time that the active
ingredient is released for use by the body. Most of
these forms of controlled delivery provide for the
release of an active ingredient over a prolonged time
period so that pills need only be taken once or twice
a day -- but other timeframes are possible.
Some controlled delivery technologies target a
particular site in the body, using a variety of
principles including the use of antibodies to cell
surface molecules (antigens) found only in specific
tissues. Effervescence and fast-dissolving systems,
which actually hasten delivery of the product to the
system, are also types of controlled delivery. There
are a variety of novel and interesting emerging
trends in controlled drug delivery but we will only
discuss prolonged-release technologies.
Why Programmable, Slow Release Drug
Delivery Is Important
If a drug or compound does not reach the
appropriate part of the body in therapeutic amounts
(i.e., is not bioavailable), it can be of no benefit, and
the purchase cost is wasted. The bioavailability of a
6
Cohen Independent Research Group
With
immediate
release
dosage
forms,
concentrations of the active ingredient in the blood
increase soon after administration and then decrease
again before the next dose (Figure 1). An important
concept in controlled delivery is that of the
therapeutic window. The therapeutic window is the
safe and efficacious range of drug concentrations in
the blood (the serum level). Above the therapeutic
window, undesired and potentially serious side
effects may occur, while below the range, drug
levels are too low be fully effective (Figure 2). To
combat this peak-and-trough effect and maintain
constant levels, medication would have to be
administered constantly (e.g., intravenously in a
hospital) or at frequent, short intervals around the
clock. The former is too costly for any except
immediately life-threatening events, and the latter is
hugely inconvenient.
drug is broadly defined as the proportion of the
administered dose that is absorbed into the
bloodstream. The delivery system is critical to
seeing that this happens. Determining the best
delivery system for a drug, and maximizing its
efficacy and safety, requires an understanding of its
pharmacokinetics—measurements of drugs within
biological systems, as affected by uptake,
distribution,
binding,
elimination,
and
biotransformation
(metabolism,
degradation),
particularly the rates of such movements. Literally,
the term means the study of the motion, acceleration,
or rate of change (kinetics) of drugs (pharmaco).
One of the major benefits of controlled delivery is
the ability to maintain stable concentrations of the
active ingredient in the body, which is particularly
important in the treatment of chronic conditions.
Figure 1
Drug Levels In Blood After a Single Administration
Dissolution Profiles
Plasm a Profiles
180
% Dissolved
120
160
100
140
80
120
60
100
80
40
60
20
40
0
20
0
5
10
15
20
0
25
0
Tim e (hours)
5
10
15
20
25
T i me ( ho ur s)
Here is an image that shows the release rate of a drug and how that correlates to plasma levels after absorption.
7
Cohen Independent Research Group
Figure 2
The Therapeutic Window
Source: PMPS article by Stephen Turner, et al., Autumn 2002
therapeutic window, reducing the potential for
undesirable side effects or breakthrough disease
symptoms. There are numerous ways to release a
drug or compound that change the way it works in
the body. See the attached figures of the various
release rates available.
Zero Order Controlled Delivery - selected and
steady release of the drug into the system over
extended periods of time is one of the many
capabilities of CDT - may increase the safety and
effectiveness of a pharmaceutical drug by keeping
the levels of the active ingredient within the
8
Cohen Independent Research Group
which the active agent is released. Drug release for
many of these devices is based on osmosis. In some
such systems, the influx of gastrointestinal (GI)
fluids forces the active ingredient through orifices in
the outer layer; in other reservoir delivery systems,
the influx of GI fluids dissolves the inner core of
active ingredient, which then diffuses out. In
reservoir systems, drug release remains fairly
constant, reducing the likelihood of variable
bioavailability. These systems suffer from
complexity and high costs of production.
Another benefit of controlled delivery is increased
patient compliance. A product must be taken to be
effective. The adverse effect of frequent dosing on
patient compliance is well documented. Less
frequent administration allowed by CDT promotes
better compliance to the treatment regimen, thus
increasing the effectiveness.
Thus, the drug delivery system is critically as
important, from both a medical and a marketing
standpoint, as the efficacy and safety of the active
ingredient itself.
Swelling-controlled delivery systems are based on
changes in the physical structure. They are designed
so that the drug cannot be released until it enters a
particular environment. These systems begin tightly
packed and dry. In the body, they absorb fluid and
swell, which increases the amount of solvent and the
mesh size, allowing the drug to diffuse out. These
systems are usually based on hydrogels that are
sensitive to the environment—i.e., swelling may be
triggered by a change in pH, ionic strength,
enzymatic conversion, changes in temperature, or
electrical field. One advantage of some such systems
is reversibility—another change in the environment
reverses the swelling, stopping the diffusion. A
system such as this might be useful for a drug that is
required in the intestines, which has a high pH (is
alkaline), so it will remain intact during passage
through the acidic (low-pH) environment of the
stomach. These systems are generally useful only for
drugs with flexible dosing requirements—i.e., a
wide therapeutic window—because gel formation is
not constant, which causes variations in
bioavailability.
The major disadvantage of slow release dosage
forms is the inability to quickly terminate
administration if an acute adverse event occurs.
Review of Delivery Technologies - How
diffusion, reservoir, swelling control
relate to DDD’s technology
Slow-release delivery systems work primarily by
three basic methods: diffusion, degradation, or
swelling/diffusion. A single given system may
utilize one or all methods.
In diffusion, the active agent is released by passing
through the delivery device. In a matrix diffusion
system, the active agent is mixed with the delivery
agent into a homogenous matrix. The drug diffuses
out through pores in the polymer matrix or between
polymer chains. The primary disadvantage of matrix
diffusion systems is an inconsistent rate of release.
The rate of release decreases as the drug is released,
because drug at the center of the matrix must travel
further to get out of the matrix. In diffusion systems,
the delivery device remains constant in size. One
advantage of diffusion systems is the enhanced
release of the active ingredient.
In biodegradable systems, the active agent is
released when the delivery device is broken down by
natural metabolic processes within the body. Microparticles are the most common formulation for
biodegradable systems. In these systems, the active
ingredient is contained within enteric-coated
A reservoir device is a type of diffusion system that
contains the active ingredient surrounded by a film
or membrane (e.g., a layer of polymer) through
9
Cohen Independent Research Group
removable (e.g., for implanted devices). The
delivery system must have an appropriate physical
structure that is not subject to undesired aging and
degradation.
microspheres; many microspheres are contained
within a single capsule. After ingestion, the capsule
breaks apart and the microspheres spill out. The
enteric coating is dissolved by stomach acids,
releasing the active ingredient. The microspheres
can be engineered to release active ingredient at
different times over an extended period by varying
the thickness of the enteric coating or the use of
additives. These delivery systems have the
advantage of releasing active ingredient into the
circulation over a long period of time and a resulting
reduced dosage requirement; the major disadvantage
is that they are complex and costly to produce.
SCOLR’s CDT systems have a wide range of
capabilities including zero order and are elegantly
simple. In zero-order kinetics, the rate does not
depend on the concentration of the reactant: a
precise quantity of active ingredient is released
during each unit of time over the entire course of the
release pattern until 100% of the drug or
nutraceutical is released, and the plot is, therefore,
linear (Figure 3). There are no bursts or lag phases in
the release pattern. For certain classes of drugs, zeroorder kinetics may be necessary to ensure that the
drug remains at constant, therapeutic levels.
Unfortunately,
most
drug-delivery
systems,
including controlled-release devices, have first-order
or mixed kinetics and those that have zero-order
kinetics are complex.
Desirable Characteristics for Controlled
Delivery
The components and their breakdown products, if
any, must be pharmacologically inert, causing
minimal or no adverse reactions; the drug must be
safe from accidental release. The formulation must
be simple to administer and, where applicable,
Figure 3
Plot of Zero-Order Kinetics vs. First-Order Kinetics
Source: http://science.widener.edu/~svanbram/chem146/ch15/lm_c15_graphs.pdf
10
Cohen Independent Research Group
Sustained (First Order) Release
% Release
1.0000
0.0000
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
Tim e (hr)
Linear (Zero Order) Relea se
% Released
100
0
0
12
T im e (h r )
Prolonge d (Ne a r Line a r) Re le a se
% Released
100
0
0
12
Tim e (hr)
Finally, the ideal controlled delivery system would
be easily produced at a low cost. Developing
controlled delivery can be costly, and that cost is
passed on to the consumer. Cost is less of an issue
11
Cohen Independent Research Group
rates. Combining the polymers slows the
diffusion of the active ingredient for up to 24
hours. The granulation step allows for the
combining of active ingredients having poor
flow properties with polymers and granulation
agents having better flow properties, resulting in
a tablet that is more easily manufactured. This
technology may also be used with active
ingredients having other characteristics that
increase the difficulty of making acceptable oral
dosage forms. For example, drugs that are
poorly compressible or require a high drug load
for therapeutic effectiveness may be combined
with more compressible materials and viscous
polymers to allow for the manufacture of a
lower-volume dosage form than is possible with
other matrix technologies.
with branded pharmaceutical drugs than with
generics or nutraceuticals. To keep costs down, the
manufacturing process of a controlled delivery
formulation should be as similar as possible to the
standard manufacturing method.
Again, CDT
provides a materially lower cost alternative, partly
because it allows products to be manufactured with
standard equipment in a simple two- or three-step
manufacturing process.
CDT and How It Works
The focus of SCOLR’s oral drug delivery business is
the development and licensing of its Controlled
Delivery Technology (CDT) -- a system of three
patented,
self-correcting,
drug
delivery
methodologies applicable to modified oral dosage
forms for prescription drugs, OTC products, and
nutraceuticals.
The size of the oral controlled
delivery market (US) in 2002 was $32 billion and is
estimated to grow to $45 billion by 2005
(Datamonitor, 2002).
•
Each of SCOLR’s three CDT platform
methodologies focuses on overcoming specific
barriers
to
optimize
drug
administration.
Advantages are discussed in the Competition
Section.
•
Dual Polymer Platform (US Patent #6,337,091;
Issued Jan. 8, 2002). The “Dual Polymer”
patent was developed specifically for the
controlled release of highly soluble active
ingredients, such as Propranolol, Diltiazem,
Verapamil, Theophylline and Metformin. Highly
water soluble drugs are dissolved, metabolized,
and excreted too quickly. A controlled delivery
system that prolongs the time they take to
dissolve and extends the time they are available
to the body could improve their efficacy. The
active ingredient is granulated with one or more
polymers or gums that have different swelling
characteristics, ionic properties and hydration
12
Electrolyte Platform (US Patent #6,090,411;
Issued Jul. 18, 2001). The electrolyte patent
uses the colloidal chemistry phenomenon of
“salting-out” to regulate the swelling and
erosion kinetics of a non-ionic polymer matrix
containing the active ingredient and one or more
electrolytes (ionizable salts). The presence of the
ionizable salts results in the formation of
diffusion channels that will not collapse. Other
past attempts at using non-ionizable agents
failed because the diffusion channels were
unpredictable, which resulted in lack of control
and poor release profiles. The electrolytes also
help to enhance or suppress the solubility, as
appropriate, of the active ingredient itself. As the
matrix hydrates, the electrolytes and polymer
compete for water with the active ingredient,
making it possible to “program” the rate of
release. The result is a system that has the
potential to achieve zero-order kinetics (among
other profiles); release of the active ingredient is
independent of its own solubility and is
unaffected by the pH of the environment.
Furthermore, the matrix does not involve
Cohen Independent Research Group
covalent bonds, so manufacturing is basically a
simple, two-step process: dry-blending followed
by direct compression. The two-step process
allows for the manufacture of a simple,
monolithic tablet with cost advantages
comparable to a simple wax-matrix but with
release profiles comparable to those of a more
complex osmotic pump or multi-layer tablet.
•
Amino Acid Platform (US Patent #6,517,868;
Issued Feb. 11, 2003). The most recent patent
also applied the principles of colloidal
chemistry. The matrix consists of a granulated
active ingredient, one or more ionic resins or
gums, and one or more amino acids. Upon
hydration the hydrophobic drug reacts with the
amino acids to form weak complexes that
greatly facilitate solubility and controlled release
from the matrix. In addition to enhancing the
solubility of drugs, the formulation can be
tailored for site specific release, including the
colon and may enhance the permeability of some
drugs. With this technology, additional
compression-aiding excipients are not needed.
These reproducible hydrophobic and ionic
interactions between the drug and the releasecontrolling constituents will allow for the
controlled release of an active ingredient over
24-hours, independent of solubility. SCOLR’s
anticipated ability to increase the permeability
and solubility of select compounds will then be
explored in order to determine their potential
applicability to permeability limited drugs.
•
The capability of delivering precise amounts of
active ingredients over a “programmable” time
period
•
Achievability of zero-order kinetics –
Suppression of the burst effect – No “tailing-off”
of release of the active ingredient at the end of
the dosing interval
•
Simple, low-cost and cost-effective formulation,
development, scale-up, and manufacturing –
Reduced time from bench to production – Twostep processing: dry blend and direct
compression – Ability to use standard, widely
available
processing
equipment
allows
production of controlled release formulation at
costs
comparable
to
immediate-release
formulations of the same active ingredient and
significantly less expensive than other controlled
release methods
•
Exclusive use of excipients generally regarded
as safe and approved by the FDA for use in
pharmaceuticals
•
Ruggedness and flexibility, allowing application
to dietary supplements, OTC products, or
prescription pharmaceuticals
•
High pay load
•
As demonstrated in vitro, a release rate that is
not adversely affected by ionic strength, tablet
hardness, pH, hydrodynamics, and other
parameters characteristic of the GI tract
Developed CDT Products
Advantages of the CDT Platform
The first products developed after obtaining the
license for Patent No. 1 consisted of controlled
release
tablets
of
glucosamine,
glucosamine/chondroitin, and other difficult
compounds and branded ingredients (Table 1).
The three proprietary components of SCOLR’s CDT
drug delivery platform have a number of advantages
compared with other currently available sustainedrelease technologies:
13
Cohen Independent Research Group
Table 2
Pharmaceuticals Developed with CDT Technology
Stage of Development
(Pre-Clinical)
Compound
Dose
(mg)
Duration/Profile
Formulation
Target†
Diltiazem HCl
60, 240 24 hr/near-linear Dilacor XR®
Feasibility Bench
Complete* Development
Complete
X
Propranolol HCl
70, 100 18 hr/near-linear Inderal-LA®
X
Verapamil HCl
100,
120
X
24 hr/near-linear Veralan PM™
Metoprolol Tartarte 100
24 hr/first-order
Glipizide
11
24 hr/near-linear Glocotrol ™ XL
Tramadol HCl
100,
200
12, 24 hr/nearlinear
Ultram™ (IR
product)
Theophylline
100
12 hr/bi-modal
Slo-Bid™, Theo
24®
Pseudoephedrine/ 120/5, 12, 24 hr/nearLoratadine
240/10 linear
Pseudoephedrine
HCl
120,
240
Toprol XL™
X
X
X
X
Claritin-D™
X
12 hr/first-order, Sudafed® 12hr.
X
24 hr/near-linear Sudafed®/Efidac®
24hr.
Niacin
500,
750,
1000
18 hr/near-linear Niaspan™
Ondansetron HCl
25
24 hr/bi-modal
Zofran™ (IR
product)
Dimenhydrinate
150
24 hr/bi-modal
N/A
Nifedipine
30, 60, 24 hr/near-linear Procardia™ XL
90
X
X
X
X
†Formulated target used as a reference for in vitro dissolution only.
*Feasibility testing measures how the formulation reacts in vitro compared to the reference product tested.
Dilacor XR® is a registered trademark of Watson Pharmaceuticals
Inderal-LA® is a registered trademark of Wyeth-Ayerst
Veralan PM™ is a trademark of Elan Corporation
Toprol XL™ is a registered trademark of AstraZenaca LP
Glucotrol ™ XL is a registered trademark of Pfizer, Inc.
Ultram™ is a trademark of Ortho-McNeil Pharmaceutical
Theo-24® is a registered trademark of UCB Pharma Inc.
Claritin™ is a trademark of Schering Corporation
Niaspan™ is a trademark of KOS Pharmaceuticals
Zofran™ (IR product) is a trademark of GlaxoSmithKline Corporation
Procardia™ XL is a registered trademark of Pfizer, Inc.
14
Cohen Independent Research Group
Nutraceuticals Developed with CDT Technology
ACTIVE INGREDIENT
CLASSIFICATION
Novasoy® DailyTM
Dietary
Supplement
GlucosamineGlucosamine/chondroitin
Dietary
Supplement
Osteoarthritis
Glucosamine
Dietary
Supplement
Dietary
Supplement
Dietary
Supplement
Osteoarthritis
Glucosamine/Chondroitin/MSM
EsterC®
Niacin
Vitamin C
Dietary
Supplement
Dietary
Supplement
THERAPEUTIC
USE
Multiple health
benefits
Osteoarthritis
Prevent
common cold,
cancer; other
uses
Cholesterol
regulation
Antioxidant
STATUS
Marketed
Europe,
U.S.
Marketed
Canada
and U.S.
Introduction
into Asia in
2004.
Marketed in
U.S.
Marketed in
U.S.
Marketed in
U.S.
Marketed in
the U.S.
Marketed in
the U.S.
million glucosamine trial that is expected to be
completed in 2005. Glucosamine is a Class 1
compound (as classified by the Biopharmaceutical
Classification System), meaning that is has high
permeability/solubility characteristics and is rapidly
cleared from the bloodstream. Nearly all BCS Class1 compounds benefit from a slow-release delivery
system. Because of its rapid removal from the
bloodstream, the recommended dosage regimen is
500 mg taken 3 times daily. The CDT release
formulations of glucosamine or glucosamine with
chondroitin have 12- and 24-hour release profiles,
allowing once or twice daily dosing.
The nearly linear 12-hour release profile of CDT
vitamin C is more convenient with increased
therapeutic benefit and fewer side effects (e.g., acid
stomach, heartburn) than the immediate release
product. The traditional formulation of tramadol
(Ultram®) is a prescription non-narcotic analgesic
with such a short plasma half-life that it must
currently be taken four times daily. In contrast, the
controlled-release formulation of tramadol has near
zero-order in vitro release kinetics with release over
12-24 hours.
Glucosamine and glucosamine with chondroitin
have become very popular in both human and
veterinary medicine over the past few years and is
used to maintain joint flexibility and treat
osteoarthritis. Indeed, glucosamine has been
demonstrated to be more effective than ibuprofen to
control the symptoms of osteoarthritis. The National
Institutes of Health is currently conducting a $6.6
Industry Demand for Sustained Release
Technologies
Controlled or sustained release technologies have
been in the market place for decades, but have
received increased emphasis recently. The large
15
Cohen Independent Research Group
delivery, an optimal drug-delivery system would
provide flexibility of formulation and cost-effective
production. SCOLR’s CDT technology does exactly
that—reducing manufacturing costs, reducing time
from the bench to market, and requiring only
standard and widely available manufacturing
equipment.
capital expenditures necessary for research and
development of new drugs have encouraged
pharmaceutical companies to maximize the return on
the small percentage of compounds that become
marketable products.
Industry wide,
pharmaceutical companies are incorporating the
sustained delivery technologies as another strategy
to extend product life cycles.
Generic and over-the-counter manufacturers are also
integrating these technologies to gain market share,
improve profitability and differentiate products.
When segmenting the total pharmaceutical market
by drug delivery method, oral is the largest segment,
commanding a 61% market share. The table below
examines the drug delivery portion of the oral
pharmaceutical market. Our interest is in the
Controlled Release Systems.
Controlled delivery technologies are widely used in
the OTC and pharmaceutical drug industry but far
less common in the nutraceuticals industry, largely
due to the cost of manufacturing to utilize controlled
delivery technology. SCOLR’s low cost controlled
delivery technology provides the same benefits to
nutraceuticals that it can provide to OTC and
pharmaceutical drugs. In addition to the improved
efficacy, safety, and convenience of controlled
Industry Demand for Controlled Release Systems
Oral Pharmaceutical Demand ($billion)
% Delivery Systems in Demand Dollars
1990
$18.4
13.4%
1995
$31.3
28.3%
$2.5
$8.9
$22.0
$33.3
$48.0
$1.6
$0.9
$7.7
$1.2
$19.9
$2.1
$29.2
$4.1
$40
$8.0
$12.2
$9.3
158.4% 46.7%
$10.8
37.0%
Total Oral Drug Delivery Demand
($billion)
Controlled Release Systems (incl. CDT)
Other
Dollar Increase in Cont Release Systems
Growth in Controlled Release Systems
$6.1
381.3%
2000
2005
$55.1 $83.6
40.0% 39.8%
2010
$124.6
38.5%
value for each category of drug delivery system.
SCOLR’s is a “diffusion” based system and deeply
rooted in simple hydrophilic matrices. Hydrophillic
matrices, among all other classes of drug delivery,
are the most widely accepted and understood due to
the age of this class and the number of approved
drugs on the market, when compared to the other
methodologies.
The market for drug delivery technology is expected
to reach $29.2 billion in 2005, a 46.7% increase
from the $19.9 billion in 2000. There are three
broad categories of controlled release systems for
the oral marketplace: Coated Bead, Diffusion, and
Reservoir. A fourth category, other is used to
include several other methodologies. The graph
below identifies the historical and projected dollar
16
Cohen Independent Research Group
Demand for Controlled Release Systems
($) Billions
20
15
10
5
0
1990
1995
Coated Bead
2000
Diffusion
2005
Reservoir
2010
Other
Recent Business Segment Performance
The diversity of technological approaches to the
drug delivery issue ensures that competitors can
have some degree of success. What works for one
drug or food supplement may not be the best for
another approach.
Different active agents,
molecular size of the API, and degrees of solubility
are just some of the determinants in selecting the
appropriate controlled release system.
Historically, SCOLR had segmented its business
into two revenue generating centers:
(a)
Manufacturing and (b) Licensing/ R&D/ Royalties.
The manufacturing segment was sold as of
December 31, 2003. Hence, we will focus on the
remaining drug delivery-related segment.
Historical Revenue Breakdown in Recent Quarters ($)
Manufacturing
License, R&D, Royal
% of
% of
% of
Total
2Q03
Total
3Q03
Total
4Q03
1Q03
1,596,983 93.7% 1,909,211 90.0% 1,457,970 91.4% 1,007,956
108,278 6.3% 211,143 10.0%
137,297 8.6% 165,235
Total Revenues
1,705,261
2,120,354
1,595,267
% of
Total
85.9%
14.1%
1,173,191
owner including inventories, equipment and lease
obligations.
In connection with sale of the
Probiotics unit, the company retired a line of credit
and a $1 million loan from a shareholder.
Sale of Manufacturing Unit
Effective 12/31/03, the Company sold the Probiotics
development and manufacturing business to the
Company’s former VP of Operations, CFO, and
General Manager. The Company received $722,756
in cash and a deferred purchase payment agreement
of $2 million. The deferred payments will come
from CDT Royalties and 0% to 10% of revenues
from the sold operations over four years. Over $2.3
million in net assets were transferred to the new
Glucosamine & Chondroitin
Glucosamine & chondroitin, the first commercial
CDT dietary supplement product, was introduced
into the Canadian market in 2002. In Q1 ’03, it was
introduced in the U.S. and the product is currently
17
Cohen Independent Research Group
chondroitin product achieves this and more. The
sustained release formulation may extend the
product life cycle. We expect revenue growth from
the glucosamine and chondroitin to continue its
strong growth for several more quarters. Such
growth could more than offset the anticipated
revenue decline in Fermentation.
sold by Wal-Mart, Trader Joe’s, Rite-Aid and GNC \
stores in the U.S. Revenues from glucosamine &
chondroitin formulation have been strong.
The importance of the new glucosamine and
chondroitin is illustrated below. Addressing a
market with short product cycles mandates new
product introduction.
The glucosamine &
Glucosamine & Chondroitin Royalty Revenues
Q103
Q203
Q303
Q403
$102,706 $514,108 $182,875 $60,187
Total
$859,876
Beneficial effects of glucosamine & chondroitin to
the patient require an initial three to six week dosing
period and continual daily dosing. SCOLR appears
to have hit a home run on this product introduction.
Visibility gained from the glucosamine &
chondroitin revenues will benefit the Company’s
discussions with additional parties who are
interested in the CDT.
We believe quarterly royalty revenues will not
display an orderly sequential pattern for several
more quarters. This short term variability in
revenues from Glucosamine & Chondroitin is due to
the inventory build at customer sites for a new
product. Within the next four quarters, a more
normalized pattern should emerge.
18
Cohen Independent Research Group
Licensing, R&D and Royalties
This unit pursues agreements with third parties.
Licensing, R&D and Royalties Revenues ($)
Q1
Q2
Q3
Q4
Total
2002
992
54,000
0
0
54,992
2003
108,278
211,143
137,297
165,235
621,953
would contemplate the advancement of the
commercialization of the molecule utilizing
SCOLR’s sustained-release CDT.
We expect
similar alliances and/or partnership announcements
in the next 18 months regarding royalty and
contracted research.
Contract R&D revenues were $0 in 2003, compared
with $54,000 in the first nine months of 2002. This
was due to the expiration of prior research contracts.
All revenues in the first three quarters of 2003 were
from royalties. The royalty revenues resulted from
sales of glucosamine & chondroitin and the
European sale of the ADM product, Novasoy®
DailyTM.
Alliance with ADM
SCOLR has formed an alliance with ADM to
develop and market dietary supplements that will
deploy the CDT controlled delivery technology.
The agreement provides ADM with exclusive rights
to use the CDT technology and a right of first refusal
on certain dietary supplements and nutraceutical
products.
This business segment is expected to ultimately
dwarf all other income to become the dominant
revenue and profit generator in years to come. Prior
to royalty income being generated by products, the
Company will receive licensing fees, milestone
payments, grants, along with R&D contracts for
research and product development prior to product
launch. The Company has recently initiated its inhouse development program while simultaneously
pursuing agreements with pharmaceutical companies
for the development and eventual commercialization
of pharmaceutical and OTC formulations utilizing
the CDT technology.
The first product introduced by ADM was
Novasoy® Daily™. Novasoy® is an established
brand used in more than 50 nutrition supplemental
products.
It is marketed for maintaining
cardiovascular and bone health, lowering cholesterol
and reducing menopausal symptoms. Dosing with
CDT technology is reduced from three times to once
a day. This product improves the bioavailability of
soy isoflavones to the body. To accomplish this,
the Novasoy® protein carrier of the two soy
isoflavones is protected from the harsh acidic
environment in the stomach.
A key milestone in the Company’s progress is
SCOLR’s recently announced successful completion
and acceptance of its feasibility study for a particular
product molecule. The Fortune 100 client and the
product molecule are not yet disclosed due to a
client confidentiality request. The next agreement
19
Cohen Independent Research Group
the convertible issue was intended to be equity, it
indicates that the Company had to offer a return
component in the form of interest payments to raise
the funds. This is not unusual for a young Company
that has yet to post a meaningful profit.
On
November 21, the Company announced the forced
conversion of the Notes into stock as of December
15, 2003.
The Novasoy® product was launched in September
2002 in Europe.
ADM has ceased sales of
Novasoy® Daily while it reformulates the product
and establishes clinical trial data before its U.S.
introduction. ADM has publicly expressed its desire
to become a consumer brand name. We expect
future announcements from ADM regarding
additional CDT-based products.
In May 2003, $550,000 of subordinated notes were
issued along with warrants to purchase 235,722
shares of stock. An additional 20,357 shares were
issued for placement services. The subordinated
shares were retired with the issue of the convertible
notes, but the warrants are still outstanding.
CAPITALIZATION
The Company is a developmental stage technology
based firm that is dependent on equity and debt
financing to meet research, development, and
corporate expenses. Recent financings include the
following.
Total shares outstanding after the recent financing is
29.66 million shares. Currently there are a total of
2.5 million options outstanding and 2.5 million
warrants outstanding. If all are executed, they create
a dilution factor of 16.9% of total shares
outstanding. In the course of exercising options and
warrants, the company will receive $7.6 million.
The timing of such exercises is highly uncertain.
In February, 2004, the Company issued 3.2 million
shares and warrants to purchase 801,636 shares. The
common stock was sold at $3.25 per share, raising
$10.4 million. This amount is not shown on
liquidity or cash flow displays as it will not be
reported on a financial statement until the 1Q04 is
reported. The warrants issued are exercisable at
$4.75 per share with a termination date in February
2009. DDD may call the warrants 12 months after
issuance if the stock trades above $8.00 for 20
consecutive days.
The recent boost to equity is quite positive for the
Company’s capitalization structure. SCOLR has
enough cash for at least the next year.
Convertible Notes – SCOLR issued $5.3 million of
convertible notes on 6/25/03. Interest was accrued
at 6% annually, payable quarterly. The conversion
price was $1.05. In December 2003 the Company
forced conversion of the Notes into equity. Since
Leverage Ratios
12/31/03
1.65%
0.99%
56.02%
Total LT Liab / Total Equity
Total LT Liab / Tangible Assets
Common Equity / Assets
20
12/31/02
88.83%
34.25%
30.69%
12/31/01
40.69%
15.72%
31.96%
Cohen Independent Research Group
Dec-03
1.65%
0.99%
56.02%
Total LT Liab / Total Equity
Total LT Liab / Tangible Assets
Common Equity / Assets
Sep-03
61.57%
31.79%
46.55%
Jun-03
58.19%
30.96%
48.96%
Mar-03
137.87%
30.21%
18.05%
receivables relative to current assets is the result of
the sale of the Probiotics unit. The absolute level of
receivables has declined in the past few quarters, and
more importantly, their quality has improved. The
Company notes that the allowance for doubtful
receivables is $0, which reflects the royalty revenues
from the sales of CDT products.
For a
developmental stage Company, asset management
has been good.
Declining cash balances and poor working capital
were rescued with the infusion of cash from the last
two financings in FY03. In connection with the sale
of the Probiotics unit (manufacturing business), the
Company paid off a Line of Credit and a long term
loan from a shareholder, thereby reducing long term
liabilities. The capital structure for SCOLR has
improved dramatically in the past year.
The
Company currently has no long term debt, and high
cash balances. The only long term liabilities are
capital lease obligations. The recent increase in
Liquidity Metrics
12/31/03
40.2%
23.3%
817.11
22.5%
Cash / Current Assets
Cash / Total Assets
Working Capital
Receivables/Current Assets
Cash / Current Assets
Cash / Total Assets
Working Capital
Receivables/Current Assets
Dec-03
40.2%
23.3%
817.11
22.5%
12/31/02
15.6%
6.4%
(41.87)
29.6%
Sep-03
37.2%
27.0%
3,562.03
14.3%
12/31/01
4.3%
1.9%
(559.00)
45.1%
Jun-03
49.0%
38.0%
5,183.88
16.7%
Mar-03
2.5%
1.2%
(368.55)
46.0%
Gross profit margins increased 320bp from 3Q02 to
3Q03. SG&A expenses increased as the result of
retaining Health Advances for consulting on
prospective agreements with pharmaceutical
companies. Increased travel and advertising expense
to market the company’s CDT technologies will
continue in coming quarters.
Q3 Quarterly Report 9/30/03
Revenues declined 3% due to the decline in
Fermentation
revenues
discussed
above.
Manufacturing revenues from Dietary and
Supplements improved 24.5% in the quarter,
primarily due to Glucosamine and Chondroitin
revenues. This increase was not enough to offset the
decline in Fermentation revenues.
The Cash Burn rate fluctuates from $0.5 million to
$1.4 million per quarter. It is reasonable to expect it
to be close to $1 million per quarter for the next two
21
Cohen Independent Research Group
reporting quarters, and decline as a function of profit
improvements from manufacturing and royalties.
CASH FLOW ANALYSIS
A valuable measure of whether a Company is
generating cash from operations is the derived Net
Cash Flow from Operations. This cash flow
measurement is a good barometer of the operating
health of the Company. When NCFO is positive,
the Company is not burning cash on an operating
basis. It is not unusual for this metric to be negative
for a developmental stage Company. The large
increase in 4Q03 was the result of the Probiotics
sale. The decline in working capital, primarily from
the decline in inventories and other current assets,
decreases the requirement for cash. This causes the
NCFO to improve. Such one time events will not
repeat, and we expect NCFO to be negative in the
coming quarters. This is expected for a development
stage company. The size of NCFO is a good
indicator of the quarterly cash burn rate. With the
new business and capital structure after the
Probiotics sale, we expect the ongoing NCFO will
be in the $3 million range for FY04 excluding any
work on new compounds. We expect this new R&D
will incur a $750,000 cost per year. The Company
has sufficient cash reserves to fund more than two
years of operations. At the end of FY05 or the
beginning of FY06, the Company will become cash
flow positive and not require additional financing.
Q404 Report
The primary event of the 4Q04 was the sale of the
Probiotics business. The company will no longer
receive revenues from the manufacturing business.
The Probiotics business was sold to the former Vice
President of Operations, CFO and General Manager.
Operating margins declined due to a decline in the
gross margin and the large increase in General and
Administrative costs. The large increase in General
and Administrative costs was due primarily to the
accelerated vesting of stock options for employees
terminated in connection with the sale of the
Probiotics business.
In connection with the sale of the Probiotics
business, the Company repaid the line of credit and a
$1million loan.
Accounts receivable have increased in the past year,
but have steadily declined in the past three quarters.
The Company reports that there are no doubtful
accounts.
This is because the high quality
receivables are related to the royalty and licensing
business.
Cash Flow Metrics
NCFO
FCF / A
Dec-03
1,895.35
-121.68%
Sep-03
(505.20)
-15.90%
Jun-03
(2,213.48)
-5.08%
Mar-03
(13.00)
-4.45%
Dec-02
(810.01)
-22.50%
year displays improvement. The 9/30/03 decline in
FCF/A is partly attributed to the change in
accounting for warrants as interest expense, which
lowers net income. If we net out this non-cash
charge in interest expense, FCF/A would be –9.5%
for 3Q03. The decline in FCF/A is not considered
The FCF/A is the Free Cash Flow relative to Total
Assets. This is a measure of how well assets are
managed to generate free cash flow. It is not
unusual for it to be negative for a Company such as
SCOLR. The negative value indicates there is a cash
burn. More importantly, the general trend in the past
22
Cohen Independent Research Group
favorable for the stock price of the company in the
short term.
The positive trend during the four
quarters prior to 3Q03 correlates to improving
returns on investments for the Company. For
SCOLR, the positive trend means the Company’s
investments are losing less than before.
The large drop in FCF/A in 4Q03 indicates the
adjustment to the new capitalization structure. Total
assets declined over 26% in 4Q03 from 3Q03 after
declining 21% in 3Q03 compared to 2Q03. The
3Q03 asset decline was primarily due to a reduction
in cash, whereas the 4Q03 decline was due to the
sale of the Probiotics business.
The FCF/A
calculated for 4Q03 is the new baseline for which to
measure the company’s ability to generate cash. We
do not expect DDD to generate positive cash until
FY06 or FY07. Combined with the changing cash
balances typical for a development stage company,
the quarter to quarter trend in this metric may easily
be volatile and not indicative of the company’s
progress towards commercialization of the CDT
technology. Monitoring this metric over a longer
timeframe, such as a LTM (latest twelve month) will
most likely prove to be more accurate of DDD’s
progress in the next few years.
•
The Company will ultimately additional
financing to implement the development of drug
delivery business. Funds will be required for
Research & Development and to commercialize
drug delivery products. The Company develop
its own products and will partner with other
companies to share in the cost of these projects.
Without partners there is a need to raise
substantial additional capital.
•
Pharmaceutical re-formulation with controlled
delivery systems requires FDA approval. It is
uncertain if those drugs will receive approvals in
a timely manner.
•
Additional financing would cause dilution to
current shareholders.
•
Additional financing would cause dilution to
current shareholders.
Looking Forward
The need for drug delivery systems continues to
grow.
Pharmaceutical companies are actively
pursuing strategies to lengthen product life cycles.
According to Data Monitor, 42 of 52 blockbuster
pharmaceuticals worth $82 billion in annual revenue
will come off patent by 2007. All of these are
candidates for implementation of a controlled
delivery technology. The market potential is large.
The benefits to a small firm with innovative
technology are enormous.
As the large cash balance that will be reported in
1Q04 is used for R&D and marketing expenses, the
FCF/A metric will improve with stable Royalty
Revenues. Any future cash infusion will cause the
FCF/A to decline in that quarter. Given these issues
surrounding this metric for a developmental stage
company, we still find it useful when tracking the
Company'
SCOLR is making progress in establishing the CDT
suite of Controlled Delivery Technology platforms
for the pharmaceutical industry. During the past
year the Company completed human clinical trials
which establishes the clinical proof-of-concept for
CDT. It is important to note that SCOLR is now
both actively developing products itself and
pursuing collaborations with pharmaceutical
companies, including those that face patent
expiration of core products within the next several
years. The first prescription drug using CDT is
Risks
There are various risks associated with investing in a
company that has promising technology, yet is
dependent on external financing for survival. We
itemize certain risks.
23
Cohen Independent Research Group
introduction would not occur for another two to four
years. However, during that period SCOLR would
receive revenue in the forms of research and license
fees, and milestone payments with royalties to
follow when the products are on the market. We
also expect announcements in the over-thecounter/generic drug marketplace and nutritional
supplement arena that could lead to new products in
two to three years.
expected to be brought to market 2006 or later. The
Company can expect to generate earlier stage drugdelivery revenues for research, licensing fees,
milestone payments and, ultimately royalties.
In August, 2003, SCOLR has announced that the
Company has entered into an Evaluation Agreement
for its drug delivery technology with a leading
Fortune 100 technology-based company.
On
November 21st it announced the evaluation had been
successfully completed and accepted by its Fortune
100 client. The two companies are negotiating the
completion of the first prototype. The Company
further announced that it was negotiating to work
with its client on Evaluation Agreements for several
additional compounds with the goal of ultimately
bringing several new CDT products to market. The
Fortune 100 Company requests anonymity at this
time due to competitive reasons.
The Company indicates
working on several new
The focus is to employ
known compounds with
benefits.
VALUATION
We forecast cash flows to identify a fair valuation
for the stock, and discount the future cash flows
back to the present. We expect total royalty
revenues to be approximately $2.5 million in FY04,
and increasing slightly in FY05.
We expect the Ibuprofen CDT formulation the
Company is working on will be introduced in the
second half of FY06. Since many users of ibuprofen
ingest this popular anti-inflammatory several times
daily when needed, we believe that the CDT version
can capture a 15% market share within two years of
introduction. We believe the CDT ibuprofen will
eventually take a 20% to 25% share in the total
ibuprofen market. The following table outlines our
revenue forecasts for Ibuprofen.
it has plans to begin
molecules during FY04.
the CDT technology to
documented therapeutic
In the nutritional supplement marketplace, SCOLR
expects to pursue agreements similar to the contract
with Wal-Mart, Trader Joe’s, Rite Aid and GNC.
Ibuprofen Forecast ($ Thousands)
The dietary supplement market is $20 billion. The
relatively low cost of SCOLR’s CDT points to more
opportunities here. Effective controlled delivery
mechanisms are rare in this marketplace. The
success with the glucosamine & chondroitin
formulation bodes well for implementation with
other products.
Market growth
Market Size
Market Penetration
Total Ibuprofen Rev
Royalty
DDD Revenues
FY08
FY07
FY06
2.0%
2.0%
2.0%
1,040,400 1,020,000 1,000,000
15.0%
8.0%
2.0%
156,060
81,600
20,000
6%
6%
6%
9,364
4,896
1,200
Other compounds the Company is working on
should have deliverable products in the FY06 to
FY07 timeframe.
Since agreements are not
disclosed, we assume the company will introduce a
CDT version for $1 billion drug in the second half of
Over the next 18 months, we expect multiple
announcements regarding specific OTC and
pharmaceutical drug platforms that are pursuing the
implementation of CDT technology. Product
24
Cohen Independent Research Group
The following graph displays the range of price
targets based on the long term growth rate and our
free cash flow forecasts.
FY07 and another in the second half of FY07. For
each compound, we estimate higher royalties
because the Company is funding most of the initial
clinical tests.
We expect that SCOLR will
immediately gain a 1% market share in the initial
fiscal year of introduction, and increase market share
by 2% in each of the next two years. These
conservative forecasts result in revenue forecasts
outlined below.
Table 3
Target Price vs. Long Term Growth
12
$10.94
Target Price ($)
10
Revenue Forecast ($ Thousands)
Current Royalties
Ibuprofen
Other Compounds
Total Revenue
FY08
3,200
9,364
6,565
19,129
FY07
3,200
4,896
1,300
9,396
FY06
3,000
1,200
0
4,200
FY05
2,800
0
0
2,800
FY04
2,500
0
0
2,500
FY07
50%
4,726
4,632
$0.14
34,000
FY06
5%
211
190
$0.01
32,000
FY05
-41%
(1,148)
(1,212)
-$0.04
31,125
$6.96
6
$5.63
$4.31
4
$2.98
0
0
10
20
30
40
50
Long Term Growth
We believe that SCOLR has the potential to grow in
the 30% to 35% range beyond our forecast time
horizon. A 30% to 35% growth rate justifies a target
price of $8.29 to $9.26. Due to the delay of positive
earnings and positive cash flows until the end of
FY06, we believe that investors will tend to be
conservative and only award a 25% growth rate.
This lower growth rate justifies a $6.96 stock price.
Free Cash Flow and EPS Forecast($
Thousands, except EPS, Shares in
Thousands)
FY08
70%
11,451
11,489
$0.33
35,000
$8.29
8
2
Since the company plans on licensing its technology,
operating margins will be high. We expect margins
to expand in the years beyond our forecast
timeframe. The following table outlines operating
margins, EPS and free cash flow for the next five
years.
Operating Margin
Net Income
Free Cash Flow
EPS
Shares Outstanding
$9.61
A slight change in the assessment of future growth
can have a large impact on the stock price. We
believe the stock price could easily exceed our fair
value price as news regarding additional research
contracts and feasibility studies are announced.
FY04
-39%
(1,006)
(1,731)
-$0.03
30,040
To determine the value associated with these
forecasts we discount the future cash flows using a
discount rate derived from the 10 year Treasury
Bond yield, the equity risk premium, and the
volatility of the stock. The discount rate used is
12.4%. This high rate is justified by the volatility in
the stock and the uncertainty of the timing of when
new compounds will receive CDT approval from the
FDA.
CONCLUSION
We believe the Company is an attractive long-term
investment. The technology SCOLR has developed
is best-of-breed, innovative, cost effective and
beneficial for consumers and the pharmaceutical
industry (both prescription and generics). The
current products utilizing CDT technology affirm
that it is a viable mechanism for sustained release
formulations. As many blockbuster drugs lose their
25
Cohen Independent Research Group
(1) adoption of CDT for additional nutritional
supplements, (2) in-house developed compounds, (3)
research and development agreements with generic
pharmaceutical manufacturers, (4) research and
development agreements with multi-national
pharmaceuticals, and (5) additional royalty
agreements. We recommend shares of DDD
common for long-term biotech growth investors.
patent protection, controlled release formulations are
becoming the de-facto method for extending product
life cycles. The company is now a pure play in the
controlled drug delivery technology industry. We
believe that the announced partnership with its
Fortune 100 technology client indicates that this
technology will be adopted in the future.
We expect the news over the next 18 months to be
favorable for SCOLR. The company has identified
12-hour ibuprofen and other compounds for its
independent development, accelerating the ultimate
introduction of OTC and/or pharma CDT products.
It has also successfully completed a feasibility study
for a particular product molecule accepted by its
Fortune 100 technology partner, and completed the
sale of its probiotics business. We expect an
agreement for the commercialization of the partnerproduct molecule is forthcoming. We expect to hear
announcements and definitive agreements regarding
GG/Cohen Independent Research Group, Inc.
D. Paul Cohen
21 Manzanita Ave. #1000
San Rafael, California 94901
Tel: 415 454 6985
Fax: 415 455 0295
Email: [email protected]
www.cohenresearch.com
26
Cohen Independent Research Group
Acyclovir Cream, Enalopril, Carbemazepine,
Citalopram CR, and5-fluorouracil.
APPENDIX
THE COMPETITION
•
Skyepharma PLC is a UK-based drug-delivery
company with a dual focus on developing
proprietary formulations of non-proprietary (offpatent) drugs as well as developing formulations
of proprietary compounds in collaboration with
corporate partners. Their controlled-release
technology is applied primarily to solving many
of the problems associated with injectable drugs,
which comprise about 15% of the drug delivery
market. The company also has a technology,
IDD®, that can be used to adjust solubility to
achieve optimal release characteristics from the
encapsulated formulation.
•
Elan Corporation, PLC, is involved in the
discovery, development, manufacturing, selling
and marketing of novel therapeutic products in
neurology, pain management and autoimmune
diseases. Elan is an example of coated beadbased systems with some work also in diffusionbased systems. Its drug delivery business unit
is
NanoSystems.
NanoSystems
recently
announced a license agreement giving BristolMyers Squibb the right to develop and
commercialize products for the use of Elan’s
NanoCrystal
technology.
NanoCrystal
technology transforms poorly water-soluble
drugs into nanometer-sized particles. The nanoform of the drug can then be incorporated into
common dosage forms. Many developed drugs
must be discarded each year because their poor
water solubility characteristics make them
impossible to formulate using traditional drugdelivery approaches. Elan hopes that its
NanoCrystal technology can help to rescue a
significant fraction of these compounds.
•
Andrx, Inc. uses its drug-technology platforms
to create bioequivalent (generic) versions of
controlled-release brand name and specialty,
The Nutraceuticals/Probiotics Market
Currently, SCOLR has no competition in the
development of controlled delivery systems for
tableted probiotics.
The Pharmaceutical Drug-Delivery
Market
SCOLR’s primary competitors in the drug-delivery
field are: Alza Corporation; Biovail, Inc.,;
Skyepharma PLC; Elan, Andrx, Inc; Impax
Laboratories; and Labopharm, as well as Flamel,
DepoMed and PenWest.
•
Alza Corporation, which has been acquired by
Johnson & Johnson, is one of the pioneers in
innovative drug-delivery technologies. Their
OROS (oral osmotic) controlled-release system
is unsuitable for drugs with a high-load
requirement and, unlike SCOLR, manufacturing
requires specialized equipment and is extremely
expensive.
•
Biovail, Inc markets a wide range of
pharmaceutical products for use in cardiology,
depression, central nervous system (consisting
of the brain and spinal cord) and more. Their
product portfolio includes controlled-release
products developed by Biovail as well as
products that have been licensed from other
companies. For example, CARDIZEM® LA
(diltiazem hydrochlorideis a slow-release
formulation of the calcium channel blocker,
diltiazem, for 24-hour control of blood pressure.
Biovail has over 20 promising NDA (branded)
and ANDA (generic) products in development,
including
controlled-release
Buspirone,
Bupropion, Metformin, Tramadol, Diltiazem,
27
Cohen Independent Research Group
will be on licensing, acquisition, and internal
development products used for treating disorders
of the central nervous system (CNS) and using
their drug delivery technologies to develop
modified or controlled-release formulations of
off-patent drugs that they will market as branded
products.
niche and immediate-release pharmaceutical
products, including oral contraceptives. Andrx is
also widening its generic research and
development
efforts
to
immediaterelease/niche/specialty pharmaceuticals without
patent lawsuits. Andrx has 10 proprietary drugdelivery technologies that have been patented
for certain applications or for which patent
protection is being sought for certain
applications. Andrx is involved in coated bead
classes and has some diffusion-based system.
•
IMPAX Laboratories, Inc., a Delaware
corporation with headquarters in Hayward,
CA, and a commercial center in Philadelphia,
PA, was formed in December 1999 by a merger
between IMPAX Pharmaceuticals, Inc. and
Global Pharmaceutical. The company is
involved in the development, manufacturing,
and marketing of specialty prescription
pharmaceutical
products
utilizing
their
proprietary drug-delivery technologies. IMPAX
is focusing on three key areas: - Drug-Delivery
Technology using a variety of polymers and
other materials to encapsulate or entrap the
active drug compound. IMPAX has 1 issued
U.S. patent and has filed two additional U.S.
patent applications and various foreign patent
applications relating to its drug delivery
technologies.
Niche
Multi-source
Pharmaceutical Products that are difficult to
develop or have special handling requirements.
Their rationale here is that lack of competition in
this niche market will result in higher profit
margins. They are also targeting select brands
with a lower level of sales. Their first controlledrelease product, Pentoxifylline ExtendedRelease Tablets, received ANDA approval in
1999. The company has five applications under
review by FDA and 15 additional products under
development.Branded
Pharmaceutical
Products is a newer initiative. The initial focus
28
•
Labopharm, a Canadian firm headquartered
in Laval, Quebec, has seven issued U.S. patents
on its core technology Contramid®. Contramid is
a controlled-release, hydrophilic starch platform
for oral and implantable products in a wide
range of therapeutic categories. Its core product
is a controlled-release formulation of tramadol,
which is in Phase III trial in the US. Its
diffusion systems have limitations when it
comes to supply of its specialized polymer and
issues of compatibility of the polymer to a wide
class of drugs.
•
KV Pharmaceutical Co., based in St. Louis,
MO, develops and markets branded and generic
drugs, together with several drug delivery
systems. KV operates through three subsidiaries:
- Particle Dynamics produces specialty raw
materials;
•
ETHEX applies KV's drug delivery technologies
towards developing and marketing generic
products that, in general, had technological
barriers to entry. Their current product line
includes more than 65 products. Its core
therapeutic lines are in the cardiovascular,
women’s health, pain management, and
respiratory fields, but they also market 11
additional products in the GI, dermatological,
and general nutritional categories;- Ther-Rx
markets branded prescription products and has
introduced 6 products (2 acquired, 4 developed
internally), including Gynazole-1, the only onedose prescription treatment for vaginal yeast
infections. This subsidiary focuses on
Cohen Independent Research Group
an amount of a substance to be lost through
biological processes.
cardiovascular and women’s health products,
based on the theory that they can compete
successfully with a smaller and focused sales
force in specialty markets.
Ionic: Relating to an ion, an atom or group of atoms
carrying an electric charge (i.e., not electrically
neutral) due to the gain or loss of one or more
electrons; anions have a negative charge, cations
have a positive charge.
Development and commercialization of controlled
delivery prescription drugs can take four to six years
and cost tens of millions of dollars to conduct
research and clinical trials. Although SCOLR’s
competitors have better funding and equipment,
SCOLR has demonstrated important and significant
advantages based on its three CDT patents: (a)
quicker product development, (b) faster-to-market
capabilities, and (c) lower cost of manufacturing.
Monolithic: As used here, characterized by
uniformity; consolidated. Synonyms: unvaried,
consistent,
constant,
continuous,
even,
homogeneous, invariable, of a piece, pure and
simple, regular, rigid. Monolithic as used by SCOLR
has a dual meaning: (1) the tablet contains only a
single, homogenous layer, and compression is
performed in a single process; and (2) the process of
drug release occurs from the tablet as a whole, with
the tablet dissolving uniformly, rather than in layers.
Uniformity translates into predictability.
GLOSSARY
Bioavailability: The proportion of the administered
dose that is actually absorbed into the bloodstream
so that can be carried to various parts of the body
(i.e., “available”).
Nutraceutical: Biologically active materials that are
formulated as dietary supplements to provide
specific health benefits for humans or to increase
productivity in animals. Nutraceuticals may be
synthesized or derived from plant, microbial, or
animal sources. The active ingredients in
nutraceuticals may consist of a complex mixture of
organic
molecules,
small
molecules,
oligosaccharides, lactic acid probiotics, fungi,
minerals, and other microbial secondary metabolites.
Calcium channel blockers (calcium antagonists):
Pharmaceutical drugs (e.g., nifedipine, diltiazem,
and verapamil) prescribed to treat patients with a
variety of conditions (chronic angina pectoris,
hypertension, coronary artery disease, hypertrophic
cardiomyopathy, certain heart arrhythmias) that
increase their risk for heart attack. Calcium channel
blockers prevent the flow of calcium ions into the
muscle cells of the heart and blood vessels, causing
them to widen and relax, which lowers blood
pressure, improves circulation, and reduces the
workload of the heart.
Osmolality:
The concentration of a solution
expressed in osmoles of solute particles per
kilogram of soluent.
Compliance: The consistency and accuracy with
which a patient follows the prescribed treatment
regimen. Synonym: adherence.
Osmole: The molecular weight of a solute, in grams,
divided by the number of ions or particles into which
it dissociates in solution.
Half-life: Generally, the period of time in which the
measured quantity decreases by half; in
pharmacokinetics, the time required for one half of
Osmosis: The process by which solvent moves
through a semipermeable membrane from a solution
29
Cohen Independent Research Group
of lower osmolal concentration to one of higher
osmolal concentration.
Polymer: A substance of high molecular weight,
consisting of a long chain of repeated units.
Pathogenic: Disease-causing.
Probiotics: A subset of nutraceuticals; live
microorganisms that naturally occur in the digestive
system and are taken as supplements to stimulate the
immune system, protect against harmful bacteria or
viruses, and aid the body’s assimilation of nutrients.
pH: A measure of acidity or alkalinity that goes
from 1 (completely acid) to 14 (completely alkaline,
also termed basic). The “neutral” pH of a solution, in
which acidity and alkalinity are balanced, is 7.0 at
22ºC (room temperature), 6.8 at 37ºC (body
temperature). The pH of arterial blood is 7.4.
“Optimal pH” is the pH at which a reaction or
process is most effective.
Serum: More specific than the term “plasma”—the
clear fluid that is left after coagulation of the blood
and removal of fibrin clot and the cells
Therapeutic window: The range of concentrations
in the blood that is effective and safe. Some drugs
have a narrow therapeutic window (e.g.,
cyclosporine), while others have a very wide
therapeutic window.
Pharmacokinetics: Measurements of drugs within
biological systems, as affected by uptake,
distribution,
binding,
elimination,
and
biotransformation (metabolism), particularly the
rates of such movements. Literally, the study of
motion, acceleration, or rate of change (kinetics) of
drugs (pharmaco).
Plasma: The fluid portion of the circulating blood;
everything except the cells.
30
Cohen Independent Research Group
Disclaimer:
This report/release is for informational purposes only. All information contained herein is based on public information. All forecasted
estimates are made by Cohen Independent Research Group, Inc. (CIRG) and have not been reviewed or approved by the company. The
company has paid a fee to CIRG for the distribution of this report. CIRG is a registered investment advisor that distributes contracted third
party independent research from outside securities analysts. CIRG’s contracted analysts issue certain securities recommendations under
NASD Rule 2711 defined as: Buy, Hold/Neutral or Sell recommendations. The Cohen Financial and Valuation Model vends statistical data
derived from SEC filings, without recommending the purchase, hold sale or short sale of any security. CIRG does not warranty that such SEC
filing data is accurate, and advises clients to validate all statistical information contained herein. CIRG’s outside contract analysts assign a No
Recommendation to certain research reports without opinion or rating, also published for informational purposes only. Under no circumstances
is this report/release to be used or considered as an offer to sell or a solicitation of any offer to buy any security or other debt instruments, or
any options, futures or other derivatives related to such securities herein. CIRG and its affiliates may trade for their own accounts any
securities of the issuer or related securities as required under the provisions of NASD Rule 2711. CIRG or its affiliates, directors, officers and
employees, may have a long or short position in securities of the issuer or related investments as required by NASD Rule 2711. Investors
interested in purchasing securities are urged to read the Prospectus, 10K, 10Q other relevant documents in full, and to conduct their own
research and due diligence. CIRG’s outside contracted analysts reserve the right to change their opinion at any point in time, as it deems
necessary. There is no guarantee that the target price for the stock will be met or that predicted business results for the company will be met.
Analysts engaged by CIRG are responsible for the full preparation and substance of CIRG’s research reports. CIRG does not supervise any
outside contracted analyst. CIRG distributes reports to the institutional and retail investment communities. CIRG or its affiliates may from time
to time perform consulting or other services for, or solicit consulting or other business from any entity mentioned in this report/release. This
research report/release has been prepared for general circulation and is circulated for general information only. It does not have regard to the
specific investment objective, financial situation, suitability, and the particular need of any specific person who may receive this report/release.
Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or
recommended in this report/release and should understand that statements regarding future prospects may not be realized. Investors should
note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall substantially. Accordingly,
investors may receive back less than originally invested. Past performance is not indicative of future performance. The Cohen Independent
Research Group has not entered into a soft dollar agreement with the referred to company. CIRG does not currently have an investment
banking relationship with the company. DDD has paid a fee to CIRG for the distribution of this research report. DDD is not responsible for the
contents contained within the report. This report/release has been prepared in accordance with the Securities and Exchange Commission's
rules and amendments, Oct 23, 2000, regarding 17 CFR Parts, 240, 243 and 249, (Selective Disclosure and Insider Trading), Regulation FD
(Fair Disclosure), 10b5-1, 10b5-2, and NASD Rules 2250, 2420, 2710 and 2711. This document shall not be copied nor reproduced in any
form without the expressed written and authorized consent of CIRG. Copyright: CIRG and D. Paul Cohen.
Buy Recommendations = 100%
31
Cohen Independent Research Group
FINANCIAL STATEMENTS
Annual Data
Net Sales
COGS
Depreciation ($mil)
Gross Profit
Marketing & Selling
Research & Development ($mil)
General & Administrative
EBITDA
EBIT
Interest Expense (-)
Operating Income
Non-Operating Income (Expense) (+)
Pretax Income
Provision for Income Taxes (-)
Minority Interest (-)
Other Income (+)
Income from Continuing Operations
Extras & Discontinued Operations (+)
Net Income
Earnings Per Share
Diluted Net EPS
Diluted EPS (Before Non-recurring items)
Common Dividend
Dividend per Share
Average Shares
Average Shares (diluted)
Estimated
12/31/2003
12/31/2004
3,395.69
2,548.92
0.00
0.00
0.00
0.00
3,395.69
2,548.92
740.00
630.00
1,525.00
1,325.00
1,700.00
1,600.00
-569.31
-1006.08
(569)
(1,006)
0.00
0.00
(569.31)
(1,006.08)
0.00
0.00
(569.31)
(1,006.08)
0.00
0.00
0.00
0.00
0.00
0.00
(569.31)
(1,006.08)
0.00
0.00
(569.31)
(1006.08)
(0.02)
(0.03)
(0.02)
(0.03)
(0.02)
(0.03)
0
0
0
0
31,125
30,040
31,125
30,040
32
Reported
12/31/2002
6,594.07
4,576.68
0.00
2,017.39
479.71
403.19
4,193.29
-3058.80
(3,059)
5,698.38
(8,757.18)
14.65
(8,742.54)
0.00
0.00
0.00
(8,742.54)
0.00
(8742.54)
(0.41)
(0.41)
(0.41)
0
0
21,519
21,519
12/31/2001
6,514.24
5,136.61
0.00
1,377.63
372.72
540.83
2,470.29
-2006.21
(2,006)
328.92
(2,335.13)
(222.20)
(2,557.33)
0.00
0.00
0.00
(2,557.33)
0.00
(2557.33)
-0.13
(0.13)
(0.12)
0
0
20,124
20,124
Cohen Independent Research Group
FINANCIAL STATEMENTS
Quarterly Data
Net Sales
COGS
Depreciation ($mil)
Gross Profit
Marketing & Selling
Research & Development ($mil)
General & Administrative
EBITDA
Interest Expense (-)
Operating Income
Non-Operating Income (Expense) (+)
Pretax Income
Provision for Income Taxes (-)
Minority Interest (-)
Other Income (+)
Income from Continuing Operations
Extras & Discontinued Operations (+)
Net Income
Earnings Per Share
Diluted Net EPS
Diluted EPS (Before Non-recurring items)
Common Dividend
Dividend per Share
Average Shares
Average Shares (diluted)
Dec-05
699.72
0.00
0.00
699.72
185.00
350.00
425.00
-260.28
0.00
(260.28)
0.00
-260.28
0.00
0.00
0.00
-260.28
0.00
-260.28
-0.01
-0.01
-0.01
0.00
0.00
31500.00
31500.00
Sep-05
656.53
0.00
0.00
656.53
185.00
350.00
425.00
-303.47
0.00
(303.47)
0.00
-303.47
0.00
0.00
0.00
-303.47
0.00
-303.47
-0.01
-0.01
-0.01
0.00
0.00
31250.00
31250.00
33
Jun-05
730.29
0.00
0.00
730.29
185.00
400.00
425.00
-279.71
0.00
(279.71)
0.00
-279.71
0.00
0.00
0.00
-279.71
0.00
-279.71
-0.01
-0.01
-0.01
0.00
0.00
31000.00
31000.00
Mar-05 Dec-04 Sep-04 Jun-04 Mar-04
730.44
636.11
596.84
657.92
658.05
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
730.44
636.11
596.84
657.92
658.05
185.00
160.00
160.00
160.00
150.00
425.00
425.00
425.00
300.00
175.00
425.00
400.00
400.00
400.00
400.00
-304.56 -348.89 -388.16 -202.08
-66.95
0.00
0.00
0.00
0.00
0.00
(304.56) (348.89) (388.16) (202.08) (66.95)
0.00
0.00
0.00
0.00
0.00
-304.56 -348.89 -388.16 -202.08
-66.95
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
-304.56 -348.89 -388.16 -202.08
-66.95
0.00
0.00
0.00
0.00
0.00
-304.56 -348.89 -388.16 -202.08
-66.95
-0.01
-0.01
-0.01
-0.01
0.00
-0.01
-0.01
-0.01
-0.01
0.00
-0.01
-0.01
-0.01
-0.01
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
30750.00 30500.00 30200.00 29800.00 29660.00
30750.00 30500.00 30200.00 29800.00 29660.00
Cohen Independent Research Group
FINANCIAL STATEMENTS
Annual Balance Sheet
Assets
Cash & Marketable Securities
Receivables
Inventories
Notes Receivable
Other Current Assets
Total Current Assets
12/31/2003
1,282.66
716.68
0.00
961.85
227.36
3,188.55
12/31/2002
257.38
486.42
493.54
166.15
242.27
1,645.77
12/31/2001
93.08
974.84
745.10
184.49
163.96
2,161.47
Gross Property/Plant/Equipment
Accumulated Depreciation
Net Property/Plant/Equipment
Investments & Advances
Deferred Charges
Intangibles
Other Non-Current Assets
Other Assets
Total Assets
0.00
0.00
29.37
0.00
0.00
359.41
1,660.62
0.00
5,507.94
0.00
0.00
1,494.32
0.00
0.00
818.37
55.39
0.00
4,013.84
0.00
0.00
1,706.98
0.00
0.00
853.68
221.54
0.00
4,943.66
Liabilities & Shareholders Equity
Accounts Payable
Notes Payable
Current Long-Term Debt
Current Capital Leases
Accrued Expenses
Income Taxes Payable
Other Current Liabilities
Total Current Liabilities
544.25
155.49
989.32
52.80
529.58
0.00
100.00
2,371.44
782.39
296.39
168.87
215.35
124.65
0.00
100.00
1,687.63
728.12
1,118.28
255.03
221.27
0.00
0.00
397.77
2,720.47
Mortgages
Deferred Charges
Non-Current Capital Leases
Minority Interest
Convertible Debt
Total Long-Term Debt
Other Long-Term Liabilities
Other Liabilities
Total Long Term Liabilities
Total Liabilities
0.00
0.00
50.98
0.00
0.00
0.00
0.00
0.00
50.98
2,422.42
0.00
0.00
327.27
0.00
0.00
56.65
0.00
710.37
1,094.30
2,781.93
0.00
0.00
433.64
0.00
0.00
209.36
0.00
0.00
643.00
3,363.47
0.00
26.46
24,735.76
(21,676.70)
0.00
3,085.52
0.00
3,085.52
0.00
21.20
14,041.05
(12,830.34)
0.00
1,231.91
0.00
1,231.91
0.00
18.01
11,871.18
(10,273.02)
(35.98)
1,580.20
0.00
1,580.20
5,507.94
4,013.84
4,943.66
Preferred Stock
Net Common Stock
Capital Surplus
Retained Earnings
Other Equity Adjustments
Common Equity
Treasury Stock
Shareholders' Equity
Total Liabilities and Equity
34
Cohen Independent Research Group
FINANCIAL STATEMENTS
Quarterly Balance Sheet
Dec-03
1,282.66
716.68
0.00
961.85
227.36
3,188.55
Sep-03
2,015.42
774.82
953.49
196.92
1,472.82
5,413.46
Jun-03
3,579.27
1,219.57
883.31
238.46
1,388.25
7,308.86
Mar-03
51.37
936.93
598.26
266.15
184.28
2,036.99
Gross Property/Plant/Equipment
Accumulated Depreciation
Net Property/Plant/Equipment
Investments & Advances
Deferred Charges
Intangibles
Other Non-Current Assets
Other Assets
Total Assets
0.00
0.00
29.37
0.00
0.00
359.41
1,660.62
0.00
5,507.94
0.00
0.00
1,318.64
0.00
0.00
735.63
0.00
0.00
7,467.73
0.00
0.00
1,359.80
0.00
0.00
751.91
0.00
0.00
9,420.58
0.00
0.00
1,421.81
0.00
0.00
743.01
13.85
0.00
4,215.65
Liabilities & Shareholders Equity
Accounts Payable
Notes Payable
Current Long-Term Debt
Current Capital Leases
Accrued Expenses
Income Taxes Payable
Other Current Liabilities
Total Current Liabilities
544.25
155.49
989.32
52.80
529.58
0.00
100.00
2,371.44
236.88
97.14
913.29
196.60
0.00
0.00
407.53
1,851.44
832.53
479.99
117.27
234.41
0.00
0.00
460.78
2,124.98
1,087.40
467.65
113.16
227.45
0.00
0.00
509.89
2,405.54
Mortgages
Deferred Charges
Non-Current Capital Leases
Minority Interest
Convertible Debt
Total Long-Term Debt
Other Long-Term Liabilities
Other Liabilities
Total Long Term Liabilities
Total Liabilities
0.00
0.00
50.98
0.00
0.00
0.00
0.00
0.00
50.98
2,422.42
0.00
0.00
160.77
0.00
1,968.57
10.81
0.00
0.00
2,140.15
3,991.59
0.00
0.00
203.63
0.00
1,665.71
21.20
0.00
793.12
2,683.67
4,808.65
0.00
0.00
261.37
0.00
0.00
36.04
0.00
751.75
1,049.16
3,454.70
0.00
26.46
24,735.76
(21,676.70)
0.00
3,085.52
0.00
3,085.52
0.00
21.38
18,532.84
(15,078.07)
0.00
3,476.15
0.00
3,476.15
0.00
21.29
18,424.01
(13,833.37)
0.00
4,611.93
0.00
4,611.93
0.00
21.20
14,041.05
(13,301.30)
0.00
760.95
0.00
760.95
5,507.94
7,467.73
9,420.58
4,215.65
Assets
Cash & Marketable Securities
Receivables
Inventories
Notes Receivable
Other Current Assets
Total Current Assets
Preferred Stock
Net Common Stock
Capital Surplus
Retained Earnings
Other Equity Adjustments
Common Equity
Treasury Stock
Shareholders' Equity
Total Liabilities and Equity
35