Omrix Undervalued After Outstanding Quarter

In March 2006 Omrix Biopharmaceuticals Ltd. (Nasdaq:OMRI) wanted to float at prices of $15-17, but owing to market conditions, it had to settle for $10 in April in an IPO led by CIBC World Markets and UBS. Omrix’s fantastic results from last week, explain why it had the cheek to try from the outset to float at prices as high as $17.

After the Pharmos Corp. (Nasdaq: PARS) fiasco, it took me some time before I could bring myself to check out more biotechnology companies with great promises. The key issue that I did not to want to compromise on was profitability since I have had enough of biotech companies with heavy losses and grandiose dreams.

Omrix is registered in the US, but is based in Israel, where it develops and manufactures biotechnological products for operating theaters in a field known as hemostasis, or control of bleeding. It came to fame at the end of last year with a product described as a “surgical sealant”, which some people hoped could be of help to former Prime Minister Ariel Sharon when he was hospitalized after suffering a massive stroke accompanied by internal bleeding.

CIBC, which has given Omrix a buy rating (“Sector Outperform”), raised its forecasts for the company following its second quarter results, and set a target price of $21, 65% above its current market price of $12.85. Omrix posted earnings per share of $0.42, more than double CIBC’s forecasts, due to higher than expected sales and gross profit. CIBC also raised its earnings per share forecast for 2007 to $1.57, which means that the share is currently trading at the ridiculous multiple of 8, with growth in 2006-2007 expected to be in excess of 50%.

With figures like these for a growing and highly profitable biotech company with an interesting product pipeline awaiting approval and partnerships with big companies, I am convinced that institutional investors will arrive sooner or later. Once they come on board, Omrix’s price will head back to the range that its underwriters originally aimed for when they led the issue - $15-17.


Published originally by Globes [online], Israel business news -
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.