Questcor Pharmaceutical, Amex: QSC $1.31
Hi again,
due to info from a friend of mine I recently took a position in Amarin Plc (AMRN) around $17. This was a drug delivery company in the past but they changed their strategy into a specialty pharma operation like BPRX, FRX and the like). The stock shot up from $2 to above $22 now. IF they execute according to plan they stated a company goal for $500m marketcap. With around 6m ADR's out that would mean a target stock price of around $80. Well all this prompted me to look at "specialty pharma" companies more.
A specialty pharma company tries to obtain marketing rights (worldwide or in select countries) to drugs and substances that are too costly to market for big pharmaceuticals with their "blockbuster" strategies. Risks are reduced (by either shedding internal new compound R&D or just deemphasizing research for marketing). Initially, when a company embarks on the "specialty pharma" strategy, usually a bigger,midsize pharma company swaps an interest in the specialty pharma company for a cash infusion on terms normally considered "sweet" for original investors in the specialty pharma outfit (Elan at AMRN, Sigma Tau at QSC). The specialty pharma co. then does best to reduce the burn rate from research and concentrates on assembling a marketing & sales team. Later late stage compounds (Stage 2 or 3) are acquired from underfinanced biotech outfits, especially where trial costs are low and success rate good. Also marketing rights to undermarketed compounds in peripheral therapeutic areas of bellwether pharma companies are acquired. This provides an instand revenue stream and further reduces the burn rate. Once the company achieves break-even things do really speed up. Debt levels are reduced and imminent profitability is often around the corner. Due to the smaller market size of the specialty pharma drugs, generic producers usually consider those niche-markets as too limited to operate in, in fact shielding the operation from generics competition even after the original patents have elapsed. After succesfully attaining "beachhead" positions in market niches and profitability the specialty pharma companies can aim for bigger therapeutic areas, usually they aim for previously unmet cures in small therapeutic areas.
Anyway, the success of AMRN, BPRX, FRX and many others prompted me to scan the market for more plays of this kind. The first that I found is Amex: QSC (Questcor). Sigma-Tau (bigger Italian pharma company) is their strategic partner and owns 28% of their common stock. They recently obtained marketing rights to undermarketed formulations of Sigma-Tau and Avensis (HP-Gel) plus they have a promising Stage 3 trial with Ceresine. They reduced their burn rate from 15cents per quarter to 7 cents and already got product revenues of around $1m quarterly. There are around 28m shares out resulting of a marketcap of $38m. The newly acquired marketing rights could more than double their quarterly revenue level. Also, Gruntal has a "Strong Buy" out on them. IMHO, by the time they will become profitable (somewhan next year) a marketcap of around $100m looks attainable ($3-4) and if Ceresine will be a success even more could be in shore longterm (maybe $10+)
Recently, DFA (Dimensional Fund Advisors) revealed the second largest institutional holding in the company. IMHO this has some significance indeed because DFA is renowned for their "value" approach in their stock selection process..
best wishes
CROSSY |
