Story 1: BioGlue continues to hold market share, or perhaps even grow slowly (say 4% per year). This should add to shareholder value over time...unless management takes everything.
STORY 2: BioGlue encounters decay of sales, margins, or both. Tenaxis Medical (“Tenaxis”) recently received FDA approval for ArterX. I don’t know anything about the chemistry of BioGlue or ArterX, but let me share my gut layman’s guess. The ArterX syringe on the Tenaxis website looks similar to the BioGlue syringe. I’m guessing that ArterX is “just as good, or slightly better, or even possibly substantially better” than BioGlue. BioGlue is effective in relatively dry areas. ArterX is effective in both dry and wet environments...my understanding anyway. BioGlue may be a dated product as well, witness its patent life has already expired.
Let’s think about this. How would Tenaxis be likely to attack CRY’s market? I suspect they would use an aggressive broadly based highly incentivised distributor sales force. Assume Tenaxis finds a number of good distributors, and gives them a high sales commission, say 25% of selling price. This would get these distributors thinking about how to sell ArterX from the second they woke up in the morning until they went to bed at night. This would work well for Tenaxis if they controlled SG&A costs. Remember that BioGlue no longer has patent protection. Also, I’m guessing that CRY sells to approximately 1,000 larger institutions. Since these are the large institutions, Tenaxis should know where BioGlue is being sold, so could target their marketing effort.
BioGlue’s long term value is now problematic, because sales and margins may decay. Given that BioGlue generates most of CRY’s “net income”, a reduction in BioGlue sales and/or margins could become a serious problem very quickly.