Seeking Alpha
Healthcare, option plays, dividend investing, long only
Profile| Send Message|
( followers)  

Summary

  • Oragenics reported earnings for Q2 on August 7, 2014.
  • I reiterate my bull thesis on Oragenics in the wake of continued development of Mu1140, and a strong cash position to sustain R&D through March, 2015.
  • I anticipated the company's latest efforts to reallocate resources to bolster the development of Mu1140, as well as its probiotic program. The latest earnings report corroborates this position.

In April I wrote a PRO article with a bull thesis stating that Oragenics' (NYSEMKT:OGEN) development of the lantibiotic Mu1140-S, using its patented organic chemistry synthesis platform, DPOLT (Differentially Protected Orthogonal Lanthionine Technology), could unlock significant shareholder value, which has effectively been trapped by the company's failed efforts to revamp sales of its oral care product, ProBiora3. I stated that such efforts have detracted from the true potential of the company, with the anticipation that management would shift more resources to Mu1140, as well as its collaborative probiotic program with Intrexon (NYSE:XON). The latest earnings report corroborates this structural adjustment, as management seems to have realized that ProBiora3 lacks significant market potential.

As reported by Yahoo, some key highlights of Oragenics' Q2 earnings report are as follows:

  • Net revenues increased to $303,752, up $136,084, as compared to $167,668 for Q2 2013.
  • Cost of sales increased to $125,605, up $38,948, as compared to $86,657 for Q2 2013.
  • R&D increased to $903,328, up $266,359, as compared to $636,969 for Q2 2013.
  • Selling, general and administrative expenses decreased to $1,177,335, down $341,975, as compared to $1,519,310 for Q2 2013.

While Oragenics continues to generate relatively stable revenue from its oral care product ProBiora3, the company did see an increase in private label sales, as well as sales to dental offices and direct purchases by dental patients. This accounted for the $136,084 increase in net revenue for Q2. I expect Oragenics should generate similar net revenue as it did for 2013 and 2012 at around $1 million. Nevertheless, the overall cost of sales increased significantly, mainly due to sales to lower margin customers, which offset the moderate increase in revenue. Furthermore, the increase in R&D costs for Q2 was primarily due to increases in salary and salary related costs, as well as stock-based compensation costs associated with the development of Mu1140. R&D costs are only expected to rise as Oragenics estimates that it will advance Mu1140 to IND in mid 2015. Lastly, Oragenics experienced an overall decline in general and administrative expenses, including advertising and marketing expenses and filing fees and transfer agent costs.

As discussed in my initial report, disappointing sales of ProBiora3 prompted management to reduce advertising and sales efforts, consisting of terminating an outside sales team and the use of selective advertising and marketing channels, and cutting back on product manufacturing. With these efforts, it seems that management now realizes that ProBiora3 is an unwanted distraction. Going forward, I reiterate my bull thesis on Oragenics based on the progress of its core asset, Mu1140, as well as its strong cash position which should provide the company enough runway for R&D through March, 2015.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Update: Oragenics Earnings - Slow Q2 Revenue Growth Supports Restructuring