Looks like Oskar Shafer (barron's round table) reads Peter...
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Let's talk about some of those good values.
Kos Pharmaceuticals is a specialty pharmaceutical company, but the core of its portfolio is focused on the cardiovascular market. Kos' flagship drug, Niaspan, an extended-release prescription formulation of niacin, which was approved and launched in 1997, targets the treatment of cholesterol disorders by raising HDL, the good cholesterol. Niaspan has a strong efficacy profile showing significant reductions in cardiac events. Kos is working on Simcor, a combination of Niaspan and simvastatin, for which the company expects to file an NDA [new drug application] in the first half of '07, with the launch expected in the first half of '08. Simcor combines the benefits of raising HDL and lowering LDL.
Are there any side effects?
Niaspan often causes flushing, but it is easily managed by taking an aspirin or anti-inflammatory 30 minutes before taking Niaspan. But few people comply, and it's made it hard for them to grow. In fact, sales have flattened out around $500 million, but Kos recently developed a new version, Niaspan MF, which reduces the severity and duration of flushing. This product could be launched in '07.
Part of the slowdown in Niaspan sales also was due to uncertainty surrounding Medicare, but that's been cleared up. Also, the product is being sold by Takeda, the Japanese pharmaceutical company, and their agreement ends this year. So Kos is building up its own dedicated sales force. In the meantime, there's not much incentive for Takeda salesmen to sell the Kos product, when they know at the end of the year they won't have it.
Will the company form a partnership with another distributor?
As of now, they are going to do it on their own. They also have a respiratory franchise with a product called Azmacort, and they've licensed a new product called Flutiform. It's a metered-dose inhaler for asthma. The market potential for this is huge, ranging from $500 million to $1 billion, but it won't be out for a few years.
Kos is cheap because people are worried about Merck [MRK], which has announced a triple-combination drug going after the Niaspan franchise. But Merck has already had delays. The triple combination is difficult to formulate. I don't believe Merck will have much of an impact on them.
Where is the stock trading?
It's around 40. At the end of the first quarter, Kos had more than $9 a share in cash and no debt. It should earn $2.75 a share in '07, excluding stock-option expense of 55 cents, which would represent a 12 multiple, adjusted for the cash. Most specialty-pharmaceutical companies are trading for 20 times 2007 earnings. Kos' board, realizing the attractive investment that its own stock represents, recently authorized a share-repurchase program for up to seven million shares, representing around 15% of the current shares outstanding. This company could be a compelling acquisition or partnering opportunity for a large pharmaceutical company, which would be able to leverage the core cholesterol franchise as part of a strategy in the cardiovascular market.
Has it had any inquiries?
I don't know. I'm sure people have it on their screens, but I doubt the founder, Michael Jaharis, would want to sell. I would advocate he partner, because at these prices it would be accretive for virtually any large pharmaceutical company that also could realize sales synergies. The stock is under the radar screens of a lot of people.
Not any more! |
