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Biotech / Medical : ChiRex (CHRX)
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To: scott who wrote (77)9/23/1997 8:41:00 PM
From: Haseltine   of 130
 
Yes, from what I understand they are weeding out the low margin products in favor of what they call "core" (i.e., high margin) products. These new products are the result of the vigorous outsourcing trend in the pharma industry plus proprietary technologies to make single isomer drugs. The one big "dog" they got rid of was acetaminophen, the active ingredient in Tylenol. As near as I can figure from the financials, at best it aborbed overhead but added nothing to the bottom line. Top line was around $20 or 25MM/yr (30% of all revenues last year). So the fact that they look to replace a $30MM revenue "hole" with new products in one year is impressive. Another way to look at it is that while their top line is flat, in reality it is growing around 50% per year (from $60MM to $90MM) and the bottom line is doing even better (>50% growth per year).

Other fine chemical companies benefitting similarly from outsourcing include Catalytica (CTAL), Synthetech (NZYM), and to some extent Celgene (CELG) and Cambrex (CBM). I happen to like ChiRex the best (I got in at 10 and am holding for more ride) since they have the chance of doubling the top line with analysts projecting greater than 70% per year compounded annual bottom line growth over the next 3 years. So far ChiRex have delivered.

Best of luck.
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