Post by miamianne67 on Dec 29, 2016 15:50:10 GMT
By Kurt Eichenwald
Published: December 22, 1992
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AFTER more than a year of lofty promises for the the Ivax Corporation, expectations fell to earth yesterday as investors learned that the company's hot-selling drug was a little cooler than expected.
Ivax, a holding company for pharmaceutical and chemical businesses, was among the biggest losers yesterday on the American Stock Exchange, dropping $5.75 a share to close at $29.25 on volume of almost 1.7 million shares. It was the worst day in the stock's trading in its recent history.
What went wrong? Nothing much, really. There were no fundamental changes in its business or major disasters. Rather, the story behind Ivax's stock drop is one of rosy predications on Wall Street that prove impossible to meet.
While Wall Street frequently makes bad calls about stocks, Ivax is a special case. With the stock trading at some 69 times earnings and having about a $2.3 billion market capitalization at the close of trading on Friday, there was little to support a steep rise in its stock price other than the projection of its future business.
And no one on Wall Street pushed those projections further or harder than Ronald Nordmann, an analyst with Paine Webber, a firm that provides investment banking services to Ivax and whose specialist subsidiary makes a market in the stock. A large number of Wall Street traders and analysts said that no analyst or market participant had had greater influence on investors' attitudes toward Ivax than Mr. Nordmann.
"He has been the biggest bull on Wall Street on this stock," one analyst said. "He's got a pretty large following." A woman answering Mr. Nordmann's telephone yesterday said he was on vacation. He did not return telephone messages that she said had been relayed to him.
Mr. Nordmann worked hard on selling the Ivax story. Analysts say that when the company had troubles, Mr. Nordmann, who has wide respect within the pharmaceutical industry, won praise from his colleagues by being able to line up conference calls quickly between his clients and Ivax's management. That has won him admiration from competitors, investors and the company, none of whose attitudes seem dampened by the fact that Mr. Nordmann has been sued by investors in another stock he recommended who accused him of being over-optimistic.
Indeed, Mr. Nordmann's influence is so great that it was the news that he was cutting his quarterly earnings estimates for Ivax and reducing the company from a "buy" to an "attractive" rating that precipitated yesterday's selloff.
Among the only investors who do not appear to have been shocked by the change were Ivax insiders, who have been selling the stock heavily for months. Last month, almost 200,000 shares were sold by insiders, almost half of the total insider selling at the company for the entire year, according to David Coleman, editor of Vickers Weekly Insider Report. "At these prices, the insiders prefer the cash over the shares," he said.
Mr. Nordmann's overestimation on Ivax came from projections of its potential sales of its generic hypertension drug verapamil, a calcium channel blocker used once a day. The analyst had set goals for $50 million in sales of the drug this year -- higher than other analysts. In an interview in the fall, shortly after shipments began, Mr. Nordmann said that it would be "hard to believe" Ivax could miss that target.
It did. In his analysis yesterday, Mr. Nordmann cut back his estimates of verapamil sales to $40 million, citing long-term supply deals with managed-care organizations reached by G. D. Searle and Knoll, the makers of the brand name version of the drug. Those contracts, which were signed and delivered even before Ivax won approval for its drug, prevent those potential buyers from purchasing verapemil from Ivax.
This is not the first time Mr. Nordmann has been one of the most eager predictors of a company's performance before it disappointed. Both Paine Webber and Mr. Nordmann are still facing a six- year-old lawsuit charging the analyst with making overly positive comments about a stock that subsequently dropped sharply in value.
That lawsuit, filed in 1986, involved a recommendation made by the analyst to buy the stock of ICN Pharmaceuticals, another investment banking client of the firm. The company was testing a treatment for influenza, herpes and AIDS known as virazole, and in his report, Mr. Nordmann said the treatment "could become one of the largest-selling drugs in the world."
Mr. Nordmann's report in 1986 pushed up ICN's price from $18.875 to $33.375 in a week. After news reports at the time questioned his analysis, the stock fell significantly. In 1991, ICN paid $600,000 in costs and penalties after the Food and Drug Administration charged the company with misrepresenting the medicinal qualities of the drug. ICN stock traded yesterday at $6.375.
But Mr. Nordmann does not expect the Ivax story to be similar to that of ICN. In his analysis yesterday, the analyst said he remained "extremely enthusiastic," and that his new projections may prove too low. "We would rather have the opportunity to raise our estimates in the future," he wrote.
A lesson well learned.
Graph: "A Sudden Drop" tracks Ivax Corporation's stock price, monthly closings from 1990 through yesterday.