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TMFHelical (98.70)

Time to loose Adams

Recs

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August 21, 2007 – Comments (1)

And time to get active on the blog again.  Time has been in short supply, but I'd like to get active on this blog, and perhaps consider writing again.  Lets see if I can do 10 solid blog posts a month for the next couple.  Anyway that's the goal (easy to say tonight, the new baby is away).

 One of my worst performing CAPS picks is Adams Respiratory.  Adams also has the distinction of being the first company I wrote about for the fool (so I have some attachment issues). I liked the supplier of over the counter (OTC) cough products.  They looked reasonably priced last September when I picked them and had just launched an animated ad campaign (similar to successful Lamasil ads) that should have driven sales.

 But today they announced a lousy quarter (but beat estimates) with weak forward  guidance.  And to add insult, they got news that Perrigo was filing an ANDA on extended release guaifenesin 600 mg tablets. So there is a pending generic challenge for a key product.

 The company presentation is here:  http://library.corporate-ir.net/library/18/189/189397/items/258630/082107slides.pdf

 Quarterly sales were lower than last year, despite the advertising campaign.  This is contrary to why I was bullish on the company.  There was an impairment charge that affected sales. To be fair, this is the weakest sales quarter, as the cough season is winter.  So I really shouldn't have had much expectation of strong sales over the summer.  

As for the product, well, I've used it and didn't care for it.  Sure it works if mucus is your issue.  But a guaifenesin pill just isn't gratifying.  When you have a cough you want to swallow a liquid, that coating feeling, albeit meaningless, provides some mental reassurance that you are going after a cough.  I don't think consumers have high expectations of cough 'treatments' as nothing really does work all too well, so that psychological boost is important IMO.

 There are some good items.  The children's line is going well, and they intend to launch a new product Mucinex with Codeine, and a prescription pharmaceutical (formulation but not drug patented).  I would like to think that this latter product would be a growth driver, but would be concerned about immediate generic challenges since only the formulation is apparently unique.  They still predict very strong sales growth for 2008 ignoring the Mucinex with codeine product (which I expect would be approved).  They also see margins improving. Of course a generic approval can throw this off pretty.

 So I will be ending my Adams pick in the next couple of weeks.  I may revisit if the company gets into the mid-20's.

Zz 

  

1 Comments – Post Your Own

#1) On August 21, 2007 at 10:36 PM, TMFHelical (98.70) wrote:

 Just listened to the Q&A.  Analysts got feisty about the expectation of larger growth rates and higher future margins.  Grumpy bunch.  I don't think I'll end this right away, today's hit seems a bit overblown.

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