Tuesday, October 28, 2008

Falling apart over Omrix

When I added Omrix Biopharmaceuticals Ltd. (Nasdaq:OMRI) to my portfolio, tracked by "Globes", I noted that it was a profitable biotechnological company in a most interesting niche - biosurgical sealants for the prevention of hemostasis in surgery - and that it was not an all or nothing company, like Pharmos Corp. (Nasdaq: PARSD), for example, where one failed trial can wipe almost an entire investment. It now turns out that while Omrix may not be of the all or nothing genre, it is a real madhouse for investors like me, who were looking for an oasis of tranquility in the biotechnology sector, a sector that has traditionally been fraught with risk.
Since the beginning of the year, Omrix has managed to issue a severe warning (in March) for the fourth quarter of 2007, plunge heavily, and replace its CFO a second time. At the beginning of this month, on the eve of Yom Kippur of all times, it issued an announcement in which it reported positive interim results in the important trial of its advanced surgical sealant, following which the share rose strongly, just as the collapse on the markets was moving into high gear. The news made the fast a bit easier to handle, but the joy was short-lived.
By the next day, Yom Kippur itself, Omrix had already updated investors with the announcement that it was halting the trial due to the occurrence of a critical fault, just a day after declaring it a success. Investors like me switched on their computers after Yom Kippur ended, only to find that the share had plummeted for the second time in six months. Later on in the month, Omrix tried to put the fiasco of the failed trial behind it with a reassuring announcement to investors about a strong third quarter. But Omrix's weary investors found little cause for cheer, and the share barely moved at all.
The denouement came last Friday when Omrix joyfully announced the resumption of the trial, as if nothing had happened at all. "We got it wrong, there was no fault," was what the announcement amounted to, and the company's share regained just a small part of the ground it lost on Yom Kippur. One can imagine how investors, who abandoned the stock on Yom Kippur after it crashed 40% following the announcement of the fault, felt last Friday when Omrix revealed it never actually happened.
The analysts covering Omrix are also finding that their patience is wearing thin. In its latest review, Citigroup describes the company's astounding u-turn as "one step forward, three steps back, one step forward." It assumes that the fault occurred for one of two reasons - either a technical failure due to human error, or bleeding in another place not treated by the sealant. Until such time as they receive further clarification, which will most likely be forthcoming on November 6, when Omrix unveils its results, Citigroup's analysts are retaining the lukewarm "Hold" recommendation they issued following the company's stiff warning in March, with a target price of just $15.
On top of all this, the Omrix roller coaster has been dogged by sporadic rumors that it could be sold for around $25 a share. The identity of the possible buyers regularly changes. Among those rumored to be in the frame are Ofer Group, Johnson & Johnson Inc. (NYSE: JNJ), Omrix's partner in the marketing and development of the aforementioned sealant and, according to "Globes", also European pharmaceutical giant Bayer AG (LSE: BYR; XETRA: BAY).

Source: Globes