Will MedImmune's Financial Performance Ever Justify Its Stock Price?

With a market cap of $8.4 billion, or 30 times sales, MedImmune (MEDI) is riding a wave of investor enthusiasm over last year's rollout of Synagis, a treatment for a serious respiratory disease in infants. Some analysts have called the drug one of the most successful launches ever in the biotech industry.

While there can be little dispute about the success of Synagis, there's plenty of dispute between the shorts and longs about how fast its sales will grow. (What else is new?) Analysts are expecting the drug, which accounts for most of MedImmune's revenue, to chug along at a growth rate of 40% this year and 30% next. MedImmune itself has done little to put the kibosh on such bullish forecasts. As recently as a week ago, at an investment conference, CFO David Mott reportedly said he was comfortable with analyst projections of $1.80 to $1.90 per share for next year (up from $1.05 for 1999). According to Dow Jones, during a breakout session, Mott even upped sales estimates for Synagis.

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However, according to one of this column's most dogged short-selling sources -- who claims to have called 50 high-volume neonatal centers throughout the country -- those forecasts for Synagis, as is often the case of hot new drugs, may be overly ambitious. And those calls to neonatal centers can't be overlooked because that's where Synagis is believed to be dispensed the most. The short-seller's survey shows that the most rapid penetration by Synagis occurred last winter, during the drug's first season on the market. And at a cost of $5,000 per treatment, the short-seller adds, hospitals have to be careful about how much they use.

What's more, he points to a September article in the medical journal Pediatrics, which says that based on the drug's current price, the use of Synagis should be restricted to the earliest premature infants, especially those born before 32 weeks.

As a result, the short-seller believes that growth of Synagis use could, at best, be flat next year -- and certainly nowhere near the 40% predicted by Wall Street.

Even SG Cowen analyst William Tanner, a MedImmune bull, cautioned in a recent report that only 10% of the patients treated in one season are treated the next season. "Thus, unless there is an increase in the number of child births in any given clinic over the previous year, growth in Synagis sales will have to come from physicians prescribing the drug more widely, or from physicians who haven't prescribed the drug previously adopting it as a therapeutic option," he wrote.

For the drug to really take off, even the short-seller concedes, it would have to gain wide acceptance by doctors for use in babies born between 32 and 35 weeks. However, a survey of 11,000 docs by Tanner -- with only 487 responding -- shows that only 16% would increase their use in the 32-to-35-week age group; another 9% would decrease their use -- of what supposedly is a hot new drug.

Tanner, by the way, points out that his survey wasn't quantitative, and he stresses that his report was not meant to be interpreted as a bearish call on the company. He also told me the company, which supposedly knows what it is talking about, has been telling analysts that it's signing up new docs to use the drug at a robust clip.

They had better be right: MedImmune's stock trades at 66 times next year's expected earnings. That's 66 times for a company that, beyond Synagis, has what is generally regarded as a very early stage R&D pipeline.

MedImmune's spokespeople didn't return my two calls.

Action Performance: The Plot Thickens

An item here last week noted how Action Performance (ACTN) had abruptly cancelled an appearance at an investment conference. (Not usually a good sign.) Well, now we know why. Yesterday, Action issued a press release announcing a few management changes. Nothing too startling till you get down to the end of the press release and you see that Chris Besing and Lonnie Boutte "are leaving the company" as chief executive and president, respectively, of Action's goracing.com unit. Until five months ago, Besing also was Action's chief financial officer.

Action makes die-cast Nascar collectibles, and goracing.com was supposed to be Action's entry into the online world. It filed five months ago to go public, but so far at least, no deal.

Reached at home by my colleague, Mark Martinez, Besing said he is no longer with the company, and that the departure was "by mutual agreement." When Martinez asked him whether he was fired, he responded, "No." He declined further comment; Action declined comment beyond the press release.

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