AMDL Management Self-Promoting a Buyout

AMDL (ADL-$3.00), which derives almost 70 percent of its sales in China from two products—the anti-emetic Domperidone and Human Placental Histosolution (Goodnak), part of its anti-aging treatment portfolio—has a history of disappointing investors.

On Friday, the specialty pharmaceutical company revised its second-quarter earnings and revenue guidance lower, largely due to unexpected delays in revenue recognition from unshipped product of Domperidone, which management blamed on the May 12 earthquake in Southwestern China.

All things are subject to interpretation whichever interpretation prevails at a given time is a function of power and not truth. ~ German philosopher Friedrich W. Nietzsche (1844 – 1900)

The 10Q Detective notes that sales in Southwest China represent about one percent of aggregate sales, according to a July 3 Investor Relations presentation.

The news on second-quarter results overshadows AMDL's announcement last month that it had finally received—after years of delay—clearance from the U.S. Food and Drug Administration to market its immunoassay ELISA DR-70 Blood Test, a method for monitoring patients with previously diagnosed colorectal cancer (CRC).

The near and long-term business strategy of management is to market the DR-70 CRC blood test, obtain regulatory approval to market additional generics, and to fund the growth of existing products.

In light of deteriorating fundamentals and cash on hand of approximately $2.0 million—enough to fund about five-months of existing operations—the 10Q Detective believes that the U.S. launch of the CRC blood test and expansion of its Chinese sales force will be delayed until the company attracts additional operating capital.

Corporate Governance

CEO Gary Dreher received a 41.9% raise in his base pay to $649,999 and a guaranteed bonus of at least $100,00 (cash and/or stock options) for fiscal 2008, according to the Proxy Statement filed on August 1 with the SEC. Given the erratic operating performance of AMDL, his new riches sound more like a retention bonus.

Self-Promoted Buy-Out

AMDL is promoting itself as a buyout candidate. Citing its attractive infrastructure of 118 distributors in the Peoples Republic of China, management says: "AMDL could easily become a buy-out target for a firm such as Teva Pharma or other Big Pharma by the end of 2008."

Given the continued financial troubles at AMDL, Dreher, who beneficially owns 8.6% of the outstanding stock, including 600,000 shares with strike prices between $3.45 a share and $3.70 a share, would probably give a thumbs up to a deal.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.