Ampio Pharmaceuticals (AMPE)
As I have argued earlier, Ampio has strong upside and stellar IP protection for its pipeline. The stock has since irrationally fallen due to the release of bearish articles that drove fear. It is often common for rising stocks to experience a corresponding rise in short interest as a matter of speculation, not a matter of fundamentals. Inevitably, with each major milestone event, the bears proved wrong and the pipeline became the story that mattered.
One of the most out-of-touch attacks made by the bearish articles concerns Ampio's management. As someone who has worked in the activist investing space and proxy fights for board representation, I have seen a great deal of poor corporate governance. To be clear, Ampio would never be a target - for one, because management has proven successful through 2011 outperformance. Not coincidentally, ISS also rates shareholder rights and the board positively.
And for good reason. For example, the firm's Chief Scientific Engineer, David Bar-Or, is an esteemed leader in several healthcare groups and has been in the clinical practice for more than two decades now. He is a prolific researcher who holds over 52 patents and would never join an inflated company. Perhaps the best sign of corporate governance is that he and his son own a large ~13% stake in the company and thus are financially accountable to shareholders. I find that his compensation, if anything, was much too low given successful trial results and value creation. Turning to Michael Macaluso, we find an experienced entrepreneur who owns ~7.1% of the company and is equally motivated on its success. As a Seeking Alpha contributor proved here, earlier accusations against his track record were out of line with reality.
So, what we have at this point is a company that it is trading well below intrinsic value. It has secured patents to a combination of diketopiperazines and methylphenidate derivatives, as well as rights to the latter. Trials have indicated strong efficacy, anti-angiogenic activity, and anti-inflammatory activity. Zertane for premature ejaculation has had a 30-year safety record in humans and has a market size larger than treatments for erectile dysfunction. Industry professionals that I have spoken to argue that volume results for similar products consistently indicate that Ampio is undervalued. Furthermore, the biotech firm is partnering with Daewoong Pharmaceuticals to market Zertane in South Korea, which will allow for nice emerging market exposure and hedge against domestic stagnation. Ampion, meanwhile, has stunningly demonstrated that it can be administered intranasally to patients with no adverse events for anti-inflammatory relief. This product has a variety of applications for allergic conjunctivitis, inflammatory respiratory diseases, and neurodegenerative CNS deceases, among others. Recently, Ampio was awarded a European patent for broad claims to compositions relating to the active ingredient of Ampion, DA-DKP.
Pfizer (PFE)
Pfizer is yet another biotech company that I am bullish about. Since I first wrote a favorable article just slightly more than a month ago, the stock has appreciated by 7.5% while the S&P 500 fell by 3%. The firm is now around a "strong buy" on the Street.
From a multiples perspective, the company is well below the peer average. It trades at only a respective 16.7x and 9.2x past and forward earnings while offering a leading dividend yield of 3.8%. I find that Pfizer is an attractive defensive play against a stagnant economy, but has less upside than Ampio does due to the former's weak pipeline given its size.
Despite having a weak pipeline, tofacitinib represents a major catalyst for the firm. This will prevent organ rejection, treat rheumatoid arthritis, inflammatory bowels, psoriasis, and, in my view, end up being a blockbuster dog. Tofacitinib is likely to be offered cheaply in order to allow for better access.
The firm also had strong performance in the third quarter amidst macro headwinds - so strong that guidance for the full year was revised upwards. Pfizer had 12% operational emerging market growth, 15% animal health growth, 24% nutrition growth, and 11% consumer growth. Management further remains committed to returning free cash flow to shareholders:
"This quarter, we took another significant step in delivering on this goal by repurchasing more than $2 billion of shares. This brings our year-to-date total to $6.5 billion. And today, we've increased our full year share repurchase projection to between $7 billion and $9 billion. Additionally, we began the year with a projection that we would achieve a dividend payout ratio of approximately 40% in about 2 years. We remain committed to that goal".
Consensus estimates for Pfizer's EPS are that will grow by 2.2% to $2.28 and then by 1.3% and 3% more in the following two years. Assuming a multiple of 16x - below peer levels - and a conservative 2012 EPS of $2.29, the rough intrinsic value of the stock is $36.64, implying considerable upside. Even if the multiple were to plummet to 12x and 2012 EPS turns out to be a staggering 17.7% below the consensus, the stock would still appreciate. Accordingly, Pfizer offers strong risk/reward.
