CSL Limited Jumps 10% Yesterday While Metabolic Pharmaceuticals Drops 70% on Announcement

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MELBOURNE AUSTRALIA (Daily Reckoning): Yesterday was a big day for the medical industry.  For one company and its investors it was a day of joy, for another company and its investors it was a day of agony.

There are always winners and losers in financial markets, however it is only usually on a day that brings such a polarised example of differing fortunes that it really hits.

In this case the winners and grinners were shareholders of CSL Limited (ASX: CSL), the former Commonwealth Serum Laboratories.  Who can believe that the share price is now $77.42?  During the last twelve months the share price has nearly doubled.

Go back to the market low point in 2003 and CSL has risen five-fold, compared to a mere doubling by the S&P/ASX200.

But it is not surprising when the company releases results that please the market no end, hence the 10% rise in the company’s share price yesterday.  In its statement released to the market yesterday the company stated it had a “profit after tax of $257 million for the six months ended 31 December 2006, up 46% when compared to the six months ended 31 December 2005.”

Additionally, in a market that adores a company that pays out a dividend, CSL announced that it would increase the “interim dividend by 75% to 49 cents per share,” albeit unfranked.  Even so, for those loyal investors that have held it since 2003 they’ve picked up a nice big whopping capital gain so the dividend adds a lovely bit of cream to it.

The market as per usual is more so interested in the outlook for the company.  That, not surprisingly, looks pretty handy too as CSL’s managing director, Dr. McNamee said, “We continue to anticipate stable to favourable conditions for our plasma therapies business…”

As we alluded above, not everything in the market produces a good result for investors.  Sometimes, just sometimes, it all goes a little pear-shaped and that investment which you convinced yourself was going to form the basis of your superannuation fund and thus contribute to retirement at the age of 38; living in the Caribbean during the Australian winter; and most importantly, enabling you to tell the boss to shove it – suddenly, it is the biggest dog of an investment the world has ever seen.

In this instance it was Metabolic Pharmaceuticals Limited (ASX: MBP) which unfortunately for them and the owners (shareholders) announced that “Trial results do not support commercial viability of obesity project: programme is terminated.”

You will not be shocked to hear that despite the shares of Metabolic having last traded at 78.5 cents when they were suspended on Monday morning, following the release of the drug testing trials the shares resumed trading yesterday morning at a lowly 20 cents.  In other words, potential buyers were not interested in gaining any exposure to MBP unless the share price was around 70% lower than its previous closing price.

Even more disappointing for the company is that if it had proven to be a simple and easy way to lose weight it would have been destined for a spot on either A Current Affair or Today Tonight.

As it is the results did not indicate a significant difference between those patients that received the weight loss drugs, and those that we just given a placebo, namely an M&M or something simiar.

However, it does make one wonder why the buyers of the stock even expressed any interest in becoming shareholders.  It appears as though Metabolic is even more speculative than it was previously.  This line from the company’s statement pretty much confirms that, “Metabolic will focus on development of its high potential pipeline, which includes pain [and] osteoporosis.”

If you’ve bought a few shares at 20 cents, then it isn’t that far to zero, although we can’t discount the possibility that the market has overreacted to the company’s news.  We’ll keep our fingers cross that at least part of its “pipeline” doesn’t become too clogged up.

Kris Sayce
for The Daily Reckoning Australia
 

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
Kris Sayce

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