CitiGroup Conference -- Healthcare Losers

Please accept my regrets about being "dark" for a time, there was a death in the family and I had to clear up a backlog at work. But here I am, so let's start with my current work.

I'm attending an excruciatingly boring healthcare conference in New York. I normally don't go to these fests -- I prefer more specialized biotech confabs -- but I'm actually looking for short opportunities for my Shorts newsletter: ChangeWave Shorts.

I am also checking the mood of the analysts in the meetings, and how they feel about some of my large cap biotech positions. These meetings are boring because the analysts and investors are, for the most part, generalists into financials not breakthroughs.

What have I learned?

• On the short side, dental companies are not talking about their U.S. business. Dentsply International (XRAY) had the temerity to devote much of its opening to emerging markets, and I fell asleep during the American Dental Partners (ADPI) presentation.

Feedback from the breakout sessions was clear -- business is slow and still slowing in the United States due to the recession, and I believe the same could happen in Europe.

• Traditional big pharma analysts -- the ones with million-dollar salaries, a third grade knowledge of anything that matters (except for the stocks they tout), no sell recommendations -- are much more concerned about the change in administration than the upcoming patent expirations.

They were told -- wrongly -- by two political analysts, who may or may not have many big pharma clients, that even though Obama and McCain want the Feds to directly negotiate Medicare prices, it will not happen.

It will happen. It could be the first thing Congress passes -- even if it is in the form of just saying Medicare will be entitled to "best price" for any drugs it buys. Many states already insist on this for their Medicaid formularies.

• At the conference there is a big-time ostrich mentality about the upcoming patent expirations -- $65 billion to $100 billion through 2012 -- and I remember the quote from a Bank of America (BAC) analyst I spoke with a few weeks before Schering Plough (SGP) lost patent protection for Claritin. ChangeWave surveys showed sales would fall off a cliff.

When I asked about Schering Plough's ability to respond, he said "they will figure it out." They did. They figured they could lose 85% share in a heartbeat and did.

That is the attitude now. If you model Pfizer (PFE) three years out -- through Q2 2011 -- you will see a $5 billion to $7 billion drop off in Lipitor sales. This somehow has escaped the attention of earnings estimates from analysts. At least they have reasonable table manners.

Any winners?

When I tell people I follow biotech they hand me their business cards -- first time it's ever happened in seven years of going to these things. When these guys wake up to the reality of big pharma, money will flow to big and emerging, revenue, but not yet profit-producing, biotech.

No Barriers for Barrier (BTRX)

Maybe you can teach an old dog new tricks.

Barrier Therapeutics (BTRX) has broken Wall Street hearts for most of the millennium. It's now selling at $2.50, down from an all-time high of roughly $20.

This specialty pharmaceutical firm specializes in dermatology treatments for both mainstream and relatively niche ailments, with three products on the market and three in mid- or late-stage trials.

In the past few days, the company cut a deal with Proctor & Gamble (PG) to bundle Head & Shoulders shampoo with a prescription treatment for dermatitis, Xolegel. BTRX will do the package assembly and selling of the product. This deal is emblematic of a turnaround in the company that has yet to show up in profits -- but has certainly jump-started revenue.

If BTRX can outlast their cash burn and/or raise some capital, they will be a nice, undervalued company. Revenue in Q1 2007 was $2.1 million; in Q1 of this year sales hit $9.7 million and the company's products are nowhere near market saturation. Forecast for 2008 is $40 million to $46 million in revenues -- and they better be that good as Barrier is burning a lot of cash on sales and marketing and overhead.

To get the company to profitability it has suspended work on two of their products in development -- both in mid-stage trials -- until partners can be found to help with the trials and/or marketing.

Q1 numbers included near $3 million in severance payments for terminated employees and the company's burn rate should be in the $6 million to $7 million range, or less, in coming quarters.

Why am I writing about this now? There is an increasing bias on Wall Street among life sciences investors toward companies with approved products, and revenues, if not products.

There is a possibility that if the company can keep the momentum going, find some partners, hit their forecasts and project breakeven on a cashflow basis in 2009, some conservative money will decide to head toward the stock. I am not recommending it, I do not own it, but take a look.