Opinion on  Monogram Biosciences Inc. (MGRM)     Sector: Healthcare  >  Industry: Biotechnology & Drugs
Monogram licenses patent portfolio to Caliper on an exclusive basis and Q1 Results..

After the close this afternoon, Mongram BioSciences held a conference call to discuss the opportunity for Monogram's Trofile(TM) Assay in conjunction with Q1 results.  Dr. Andrew Zolopa, a leading HIV physician from Stanford provided a compelling overview of Mongram's Trofile test and the current opportunities with Pfizer's new HIV drug  Maravioc which recently received a unanimous recommendation from an FDA panel and pending approval.

Some enlightening points were made during the presentation that will translate into positive earnings for Monogram going forward.  For instance:

1. Their are six drug manufactures/developers that currently have drugs that  fight infectious disease in various stages of development and approval. 
2.  It is likely that patients will require multiple tests (Trofile) during treatment.
3.  Approval of Maravioc is progressing rapidly in the international market place.
4.  Competing drugs under development once thought to be replacements or alternatives for Marvioc will likely be complementary instead.

During the Q1 update, shareholders and analysts were reminded that the company's oncology products due out later this year should be even bigger news.  Based on the discussion, we can expect more volume, quicker turns and bigger margins in this line of products.

Q1 revenue was down significantly but the real news lies below the surface.  Much of the revenue that was not realized this quarter was from tests performed for pharma trials that have now finished.   Patient revenue is now ramping and starting to replace revenue generated by trials as drugs are approved.

Lastly, Mongram announced an exclusive deal with Caliper to license an unused portion of its patent portfolio not related to its core product lines.  According to Mongram's CFO, this presents an opportunity to obtain royalty revenue while at the same time reducing the expense of maintaining these patents by nearly $250K annually.  ir.monogrambio.com/releasedetail.cfm

After all this good news the stock is trading even lower.  This reminded me of a speech a few years ago delivered by one of Americas greatest investors, Charlie Munger.  The speech was delivered at Harvard University and the subject was "The psychology of human misjudgment".  During this speech Charlie outlined 24 common misjudgments that drive humans to make irrational decisions.  Several of these misjudgments have been made by traders of this stock in the last few weeks.  As a result, they have irrationally driven the price down on good news.

What an opportunity to buy a great stock cheap!  Be sure to do your due diligence and listen to the call!  ir.monogrambio.com/eventdetail.cfm

We should see more upgrades coming in the next few days. 

US HIV Patients tested during first year(25-40K)
http://online.wsj.com/article/SB117744070573080845.html?mod=y...
http://yahoo.reuters.com/news/articlehybrid.aspx?type=comktNe...

Average price for current assay resistance tests offered by MGRM ($925 per test or a range of $500-$1200 per test) http://www.secinfo.com/dSYE7.1yp.htm

Low estimate ($500 x 25K = $12.5M)
High estimate ($1,200 x 40K = $48M)
Average estimate ($925 X 32.5K = $30M)

MGRM 2006 annual revenue $47.96M (approx $12M Trofile test for Pfizer will be replaced by patient revenue above)
http://finance.yahoo.com/q/ks?s=MGRM
http://biz.yahoo.com/prnews/070502/new064.html?.v=5

Gross margins for this product were estimated to be over 50% by the CFO today on the call.

Information was derived from press releases and presentations.

Forget the fact that the future is very bright for this company and bare with me for a few minutes if you are a long investor for this stock.

This quarter the management team failed miserably by missing their targets. This was not Pfizer's fault but their own. They counted on revenue from Pfizer they should have known would not be there when testing ended. How could they miss this? What's almost as bad is they gave a "the dog ate my homework" speech that the street did not buy.

These days the street has strong negative reactions to any misses and conversely rewards companies that exceed expectations. The reaction to the news was completely justified.

With the level of management experience the company has, they should be completely and utterly ashamed of their performance. There was no excuse for missing the target and they are 100% responsible.

What is worse is that the potential exists for more of the same. Management is no more accountable today than yesterday as they have all been rewarded with stock options for missing Q1 expectations. This is precisely the reason that shareholders voted today to have a say in executive compensation at Verizon.

As has been proven time and time again, managers leading most American companies do not have the discipline to take responsibility for their failures. From a business management perspective, MGRM appears to be one of these companies.

Today shareholders were punished for the managers lack of attention to Q1 results. It's great that they have the best science but they have to perform equally well at running the business.

The bottom line the management team had better get their act together or the board should find managers that can.

There is little question the stock will recover at some point but it will not be as soon or rise to the level it could have.

After a long wait, Mongram has finally started to move in anticipation of the pending FDA approval of Pfizer's new HIV/AIDS drug Celsentri (Maraviroc).

The FDA's Antiviral Drugs Advisory Committee made the unanimous recommendation on April 24th.   The final sign-off from the FDA should come in early June.   There are some safety concerns so the drug will likely be used only by those patients resistant to currently available treatments. 

Mongram BioSciences will provide the mandatory screening tests for this treatment.  This will be a significant revenue source for the company. 

The stock is moving higher again today in anticipation of final approval of the FDA.
 

Analyst Jeffrey Frelick of Lazard Capital maintains his "buy" rating on Monogram Biosciences Inc (ticker: MGRM). The target price is set to $3.25.

In a research note published yesterday, the analyst mentions that the company has presented data from several studies concerning its e-Tag oncology diagnostic tests at ASCO over the weekend. The analyst considers the early e-Tag data as a positive sign for Monogram Biosciences. Additional oncology catalysts in 2007 could include further e-Tag data, the publication of scientific journals and the announcement of a corporate oncology partner, Lazard Capital adds.

http://www.newratings.com/analyst_news/article_1544430.html

Pharmaceutical giant Pfizer Inc said Wednesday that it would launch a new HIV-AIDS drug, Maraviroc, in July after tests were conducted successfully in the United States.

"A new HIV-AIDS medicine is coming out in July after tests being carried out in the United States by the FDA (Food and Drug Administration)," the head of the firm in South Africa, Richard Paulson said at a briefing to journalists.

The new drug, which will be taken orally, is set to be formally approved by the FDA on June 20 , a spokesman for the company said.

http://www.japantoday.com/jp/news/408712