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CryoLife Inc. Message Board

  • dlhild@ymail.com dlhild Feb 13, 2010 11:33 AM Flag

    Point #2 - CRY is sitting on an earnings time bomb

    CRY is sitting on an earnings time bomb, unless they work things out with Medafor or develop or buy a new high margin product line.

    CRY's model has some serious problems. The tissue business is a low gross margin (46%) business with high fixed costs...more on this below. BioGlue has a 85% gross margin, BUT it goes off patent in in the USA in 2012 and rest of world 2013. At this time, BioGlue sales and margins may start to come under pressure. BioFoam is a complete market unknown, so still has to gain market share and prove itself. CRY needs to get their long term pipeline sorted out, or they could be a $3 stock in 3 years.

    The problem with CRY's model then is that it has high fixed costs, for some reason...probably reasons having to do with the tissue business. In any event they have about $55M in fixed costs, which is very high for a medical company of its size.

    For 2009 CRY will have revenue of about $110M. Fixed costs will be about $55M. Using a combined 62% gross profit and then subtracting off fixed costs, this results in $13 million in EBIT.

    At $180M market cap (roughly $6.40/share on 28 million shares, results in a 13X EBIT and a 22-23X PE after full tax charge of 41%.

    With this model, if they hit a declining revenue curve (BioGlue off patent and HemoStase with 4 years remaining), their high fixed cost structure caves in on their head...$2/share, $3/share...things would be ugly.

    Now I repeat. Medafor at the present time has adequate cash flow to BOTH grow sales and litigate , if need be.

    The irony is that if they quit fighting, both CRY and Medafor would both do better than if the fight continues. Also, humanity would be better off too.

    SA and GS, figure out how to become golf and drinking buddies.

 
CRY
9.10-0.17(-1.83%)10:32 AMEST