Herbal-supplement maker PharmaPrint, which says its ginseng pills can boost energy, could use a little invigoration itself, namely from the U.S. Patent and Trademark Office.
The Irvine company's shares have mostly been heading lower since February, when they peaked at about $15. Now at around $5, analysts say a long-awaited patent on PharmaPrint's herbal-extraction process is key to jump-starting the stock and making it stand out in the increasingly crowded herbal-supplement field.
PharmaPrint is "loaded with potential," says Skip Wells of Adams, Harkness Hill in Boston, but many onetime fans have "given up." A patent, he says, "would go a long way" to reviving interest.
There are signs of life in the three-year-old application. In late June, patent officials conferred "special status" on it, meaning it gets bumped ahead of others in line. That could potentially shave months off the process. A patent application is granted special status for a variety of reasons, ranging from the potential use in cancer or HIV/AIDS treatments (PharmaPrint's claim) to the age of an individual applicant (older patent seekers are sometimes put ahead of younger ones).
Stephen Kunin, deputy assistant commissioner for patent policy, can't talk about the PharmaPrint application specifically. But Mr. Kunin outlined a best-case timetable for special-status applications that could result in a "notice of allowance" within four months -- if there are no hitches. A notice of allowance means a patent will be granted after a fee is paid and processed.
PharmaPrint is trying to win a patent for a process that purports to identify and quantify active ingredients in herbs, then provide them in consistent, standardized doses in its supplements. One of the criticisms of the herbal-remedy industry is that consumers don't always know what they're getting, with doses varying not only from brand to brand, but bottle to bottle and even from pill to pill.
The process was created at thee University of Southern California by pathology Prof. Tasneem Khwaja, now PharmaPrint's chief scientific officer. Venture capitalist Robert Burgess brought initial financial backing to the deal when the company was founded in 1994. Mr. Burgess was PharmaPrint's president and chief operating officer until he resigned last week, citing health problems. He remains a major shareholder, with about a 10% stake, and his son, James, continues as the company's head of investor relations. Chief Executive Elliot Friedman says he's in talks with two potential replacements for the older Mr. Burgess, both from the pharmaceutical industry.
Meantime, a patent would be both a marketing tool and an immediate economic boon for PharmaPrint. Approval would trigger a royalty agreement with American Home Products, Madison, N.J., which teamed with PharmaPrint last year to launch six herbal supplements under American's popular Centrum brand. Under the deal, American agreed to pay PharmaPrint 6% of the supplements' sales, in addition to manufacturing costs and $3.5 million in licensing and development fees.
American Home is one of a handful of major pharmaceutical companies, including Germany's Bayer AG, and Warner-Lambert, Morris Plains, N.J., that have jumped onto the herbal bandwagon. Consumers taken with claims of herbal remedies for everything from depression (St. John's wort) to enlarged prostates (saw palmetto) ignited a boom in the business, which totals about $4 billion in U.S. sales.
Sales at mass-market outlets grew 55% in 1998, according to the American Botanical Council, a scientific-research organization in Austin, Texas. That steep growth is said to be slowing this year, in part because of a lack of hot, new herbal treatments, questions about efficacy and concerns about the limited regulation of the industry. But gains are still in the double-digits, according to Information Resources Inc., a market-research firm in Chicago, and the big players waanntt a piece.
The
...
. Under the deal with PharmaPrint, American Home said it would spend at least $20 million in marketing during each of the first two years of the agreement.
The agreement doesn't preclude PharmaPrint from launching other products. Mr. Friedman, the CEO, says the company next plans to expand into "co-branded" private-label manufacturing of combination vitamin/herbal products for mass market and Internet retailers. He says products would have a store's private-label brand and a PharmaPrint mark. He says he expects shipments to begin this fall, but could offer no specifics on deals.
Steven Gerber, an analyst at CIBC World Markets in Los Angeles who is also a medical doctor, says that would be a good move, given the higher profit margin on private-label products and the reduction in exposure to American Home. Dr. Gerber also says PharmaPrint's plans to move into "functional foods" such as fortified juice, soy and bran products, is "a very logical application of their core technology."
Anticipated research and development costs for the new ventures prompted Dr. Gerber to slash his earnings estimates for fiscal 2000, ending March 31, to a loss of seven cents a share, from a profit of 15 cents a share. First Call's average estimate for the year is a four-cent profit, up from a loss of $1.08 in fiscal 1999. It would be the company's first profitable year.
To be sure, there are obstacles to getting there. The market could become even more competitive. Herbal remedies might prove to be a fad, as some predict, and interest could wane. Conversely, if interest continues to grow, herb supplies might dwindle and prices climb. And, of course, the patent process could drag on or a patent could be denied outright.
Dr. Gerber, who rates the stock a "buy," says "it's an interesting company at an interesting juncture." At this point, he says, what happens with the patent "is the whole story."
- By: Brenda L. Moore
- SOURCE:: The Wall Street Journal
1999.08.11
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