Factors Contributing to the Categorization of Worst Performing Companies. The Case of Protein Sesign Labs, Inc. (PDLI)

Abstract

THIS PAPER EXAMINES THE FINANCIAL PERFORMANCE OF ONE OF THE 2002 WORST PERFORMING COMPANY, PROTEIN DESIGN LABS INC. FOR THE PERIOD 1993 TO 2002. FINDINGS INDICATE THAT THE PROFITABILITY RATIOS SUCH AS RETURN ON EQUITY, RETURN ON ASSETS AND NET PROFIT MARGIN WERE NEGATIVE FOR MOST OF THE YEARS BETWEEN 1993 AND 2004. THE PEARSON'S CORRELATION COEFFICIENT BETWEEN PROTEIN DESIGN'S NET SALES AND R & D EXPENDITURE FOR THE PERIOD 1993 TO 2004 IS .85 AND IS SIGNIFICANT AT 1 PERCENT LEVEL. BETWEEN 1996 AND 2004, ANNUAL EXPENDITURES ON RESEARCH AND DEVELOPMENT EXCEEDED THE ANNUAL NET SALES. THE CURRENT RATIO OF PROTEIN DESIGN RANGES BETWEEN 10:1 AND 58:1 IN 1998 AND 2000 RESPECTIVELY. PROTEIN DESIGN IS BY FAR MORE LIQUID THAN ITS COMPETITORS. THE CASH FLOW ADEQUACY AND CASH INTEREST COVERAGE RATIOS INDICATE THAT PROTEIN DESIGN WAS EXTREMELY LIQUID FOR MOST OF THE PERIOD. CASH FLOWS FROM FINANCING WERE RESPONSIBLE FOR HEALTHY CASH FLOW SITUATION. THE EFFICIENCY RATIOS WERE POOR. THEY SHOW THAT DURING THE PERIOD, PROTEIN DESIGN HAD THE LOWEST TOTAL ASSET TURNOVER WHEN COMPARED TO ITS IMMEDIATE COMPETITORS SUCH AS CORIXA AND MEDUMMUNE. DESPITE POOR EARNINGS GENERATING PERFORMANCE, PROTEIN DESIGN IS AMONG THE TOP EMERGING PHARMACEUTICAL COMPANIES ATTRACTING HIGH CORPORATE ALLIANCES AND INVESTORS' CONFIDENCE. WITH A NEW CHIEF EXECUTIVE, A NEW PRESIDENT OF RESEARCH AND DEVELOPMENT, AND A STRONG BALANCE SHEET, PROTEIN DESIGN LABS INC IS EXPECTING GREATER PROFITABILITY IN THE FUTURE.