It appears that tissue sales contribute very little to CRY’s after tax income. This begs the question: Why does CRY continue selling tissue?
Broadly speaking, CRY has two tissue lines, ‘cardiac’ and ‘vascular’. I don’t know the early history, but suspect early tissue products were developed during the 1990’s, and formed part of the basis for CRY becoming a public company. During 2001 some contaminated tissue was used. An investigation showed that Brian Lykin died from it. More contaminated tissue was discovered too. This is what caused CRY stock to collapse from $42, to under $3, during 2002. This caused the FDA to look closely at CRY’s tissue business. The result was more regulatory oversight. This added to cost, and is probably the reason that tissue gross margins have been low ever since.
Combined tissue sales were $59,793,000 during CY 2011. COGS was $34,340,000, gross profit was $25,453,000, and the gross profit percentage was 43%. If one allocates operating expenses using a pro-rata based upon revenue method, the combined tissue product line generates an after tax loss. I’m sure CRY allocates operating expenses differently, but it appears to me that presently the tissue business generally is not very profitable no matter how CRY allocates operating expenses. This gives rise to a question. Should CRY continue in the tissue business, or should they instead sell it (assuming they could find a buyer)? I personally think that CRY needs to either exit the tissue business, or alternatively figure out a way to make it significantly more profitable over the next 2 years. The main thing CRY would need to do is dramatically increase the gross margin percentage. At the very least, CRY needs to increase the gross margin percentage from the 43% range to at least the 50% plus range in order to reach reasonable profitability. The tissue business potentially has a significant liability tail too, so why run a low profit business with a large potential liability tail?
Tissue sales represented roughly 50% of 2011 sales. An important question then is whether the sales staff is using 50% of their time selling tissue products that don’t make any money? I would guess ‘yes’. If so, wouldn’t it make more sense to get out of the tissue business altogether and then re-focus CRY’s small sales staff on selling high margin products instead? Also, this brings into question whether SA (Chairman, President, and CEO), Gerald Seery (Senior VP, Sales and Marketing), and Bruce Anderson (SA’s son and US VP Sales and Marketing) are effective at generating sales growth. Perhaps CRY’s overall sales model is not well designed, or not well managed, so as to fit CRY’s combination of products and company size.
Conclusion: The tissue business doesn’t seem to make much in the way of after tax profit. The tissue business may instead be a distraction for management and for the small sales staff that should instead be focused on selling high profit products. In my view, the tissue business isn’t worth much in terms of share price if it doesn’t generate much after tax cash flow. Also, I think tissue is why CRY stock is valued at only 1.2x trailing 12 month revenues.
Note: This discussion represents nothing more than my own opinions and analysis. I am not representing anything here as being factually accurate. You’re responsible for your own due diligence. If there are good reasons to stay in the tissue business, it would be interesting if CRY would explain why.
How do I know about the possible DSM synergies?
Why I happened to own MATK when they bought that out.
(Reuters) - Dutch food and chemicals group DSM (DSMN.AS) is buying U.S. medical device-maker Kensey Nash Corp KNSY.O for $360 million to strengthen its biomedical business, leaving it with plenty of cash for more deals.
Kensey Nash's medical devices and biomaterials are used in cardiology, spinal and general surgery. Its best-known product, AngioSeal, is used by doctors to close punctures made in arteries, for example after using a catheter for angioplasty.
DSM has transformed its business over the past couple of years, selling off its lower-margin bulk chemicals businesses to focus on less cyclical food ingredients and high-end plastics.
It has been on the prowl for acquisitions in the more profitable nutrition and life sciences businesses for several months, building up a war chest of about 2-2.5 billion euros. It said on Thursday that it was still looking for new deals.
Sorry to disappoint you but I retired 12 years ago at 51 years old. How I did it was by trading stocks long and short but never keeping a position longer then a few months. Trading still and making very good gains still after 35 plus years. Knowing what the criminals on the inside are doing is crucial to success. In a few weeks the insider reports will come out that they sold into earnings rally. Then when stock is low to mid 3's they will announce new stock option grants. Steal from others by mimicking their actions.
I doubt whether or not you are a short seller. You seem to be too ignorant. My guess is you are a high school or college student working for a hedge fund as a shill or a former employee with a chip on his shoulder. Your comments are not the least bit constructive.
Tell your boss that he ought to cover before somebody like Oscar Schafer of O.S.S. Capital Management reestablishes his position. You know Oscar use to own 2 million shares. Of course at lot of those shares were a 6% convertible perferred at 8 dollars per share that Oscar bought directly from CRY when CRY was in trouble about 6 years ago or so. Those shares were converted at 8 and sold in the teens.
The CEO who also happens to be the founder of CRY said during the CC that he thinks the recent aquisition of Hemosphere could have $20,000,000 in annual sales! One of the reasons is the "Hero" product can be sold to the same doctors that the tissue salesman are currently selling to. The "Hero" product is a one of a kind product for treating patients that have more advanced vacular problems.
The "Hero" product was only be sold east of the Mississippi when CRY bought the company and has a 65% gross margin. CRY will start training their salesmen to sell that product in this quarter. The CEO said that Hemosphere had 150 leads from doctors west of the Mississippi that weren't acted on as their salesmen were all located east of the Big Muddy.
So one can see that the Tissue business works in other ways such as the recent aquisition of Hemosphere.
By the way, this was a very positive CC. One can see how mgt. is really starting to build the business and produce a much more valuable company.
PS: Has anyone noticed that the CFO has twice bought shares on the open market for the first in the 6 years that I have followed CRY? They weren't big purchases but the CFO strikes me as a very conservative guy. Generally speaking the CFO is the one guy I like to see the most making insider buys.
You had a very well thought out view on the tissue business and made some good points.
While the tissue business may not be a significant contribtor to after tax net income, it does produce substancial cash flow! Furthermore CRY has high fixed costs for such a small company as mgt. is trying to grow the company so contribution from the tissue business in the form of fixed cost coverage is welcome.
I think the best way to look at CRY's potential value is to look at the free cash flow X nonreoccuring items and then look at the new product pipeline. I think that's why VL rates CRY's 3 to 5 year potential in the top 2% of all the 1700 companies they follow.