Stock of the Day
Feb 15, 2000
Andrx Corp: Strong Generic Rx
Analyst: Dave Peltier (2/15/00)
Andrx Corp. (NASDAQ:ADRX - news) handily beat fourth quarter earnings per share estimates last week by a nickel when it reported a profit of $0.63 per share. It was the fifth consecutive quarter that Andrx topped the Street's expectations.
The company?s earnings increased 215% on sales growth of 67%, and it had a record gross profit margin of 48.4%.
The revenue growth helped lift the company into a positive earnings surprise. In fact, the company?s earnings growth was so strong, it could have legitimately qualified as an America?s Fastest Growing Companies (AFGC) Stock of The Day since they grew by more than 100%.
And given the company?s track record and the bullish outlook on the revenue contribution from some new products, we think the company is going to continue beating Street estimates.
Monday, the stock gained $3.44 to $68.88. Six weeks ago, the shares were mired in the low $40s.
Andrx makes generic drugs and first hit pay dirt last year with Cartia XT ? a product that works against hypertension and angina. The drug had six months of exclusivity in the market this year as the only generic to Cardizem CD and had estimated sales of $115 million ? much higher than anyone's expectations.
Before Cartia, Andrx distributed other companies' pharmaceutical products ? a business that still accounts for 55% of sales. The gross product margin that the company enjoys on its own drugs of more than 80% is about four times greater than what is sells from third-party suppliers, meaning that the company fought to make a profit in its first three years of existence.
Better-than-expected sales in the quarter allowed Andrx to ramp up its research and development spending without cutting into profits. The company spent $9.4 million on research in the quarter, up 81% over the prior year.
Andrx has a strong pipeline ? including two drugs nearing the end of trials and three others that should hit the market in the next twelve months. The company expects to still hold 35% to 40% of the generic market in this drug for 2000, which could equal up to $100 million in additional sales.
Looking forward, the real buzz around this stock is Prilosec (branded by AstraZeneca), a drug that helps quell stomach disorder. Despite the fact that it won't hit the market for another 18 months, estimates abound that Andrx's generic could bring in sales of almost $200 million in its first three months.
According to analyst Andrew Forman of Warburg Dillon Read, "Cartia XT is likely just the warm-up band for Prilosec. Prilosec is six times the size of Cardizem CD."
Again the company is looking to have the exclusive generic market for six months with Prilosec. The product is currently the world's largest selling drug, nearing $4 billion to date.
Andrx owns a 73% stake in Cybear (NASDAQ:CYBA - news) , an Internet portal for both doctors and patients. In December, the company announced it would purchase the stake in Cybear it doesn?t already own and issue a tracking stock to Andrx shareholders.
This move should help the company unlock the value inherent in Cybear, and will certainly remove its losses from Andrx's results. Without the losses incurred from Cybear, Andrx would have gained $0.72 per share in the fourth quarter and $3.23 per share versus $2.90 for the year.
With Healtheon/WebMD (NASDAQ:HLTH - news) seemingly buying up everyone competing in its space, Cybear could be a potential acquisition target down the road.
Last week Andrx announced it was buying privately held Valmed Pharmaceutical. The company had approximately $40 million in sales in 1999 distributing drugs and was profitable, although the size of the profit has not been disclosed. Management said that it expects the acquisition to be accretive to earnings.
Andrx made the acquisition for an undisclosed amount in cash. There?s no doubt that the company could afford it: had over $4 per share in cash and no long-term debt at the end of 1999.
Analysts recently upgraded their forecasts, and now the Street expects Andrx to earn $1.40 per share in 2000 and $2.50 the following year. At its current price, the stock is trading at 49 times its 2000 earnings and less than 28 times its 2001 forecast.
Bottom Line:
With biotech stocks remaining white-hot and Andrx continuing to exceed earnings expectations, there is little reason why the stock cannot continue its momentum into 2000 and beyond.
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