All 3 companies listed here are strong buys in my opinion for long term investment, with one of them having strong buy-out rumors attached to it. Typically, I view the long term as 1 to 10 years depending on the price target and growth rate of each specific company. When investing long term, I feel investors should understand that your money could be tied up for some time. Always consider the growth rate when buying a smaller cap company. The time to sell usually is when growth begins to flatten out in my opinion.
Top notch management is the number one fundamental factor I look for when considering a small cap growth company. I want to see management that understands business and investment first and foremost. Many small bio pharmas may have potentially blockbuster products, but without proper management, these products might not be marketed correctly. Furthermore, if management does not know how to manage money correctly, the business will ultimately fail. Savient Pharma (OTC:SVNT) comes to mind when I think of a very poorly managed company.
Long term investors might also consider using option trading to hedge or lever their positions accordingly, especially under the current EU zone macro headline driven market. The first company I list below has what I consider to be strong buy-out rumors associated with it.
Obagi Medical Products (OMPI)
OMPI develops, markets, and sells topical aesthetic and therapeutic prescription skin care systems. It offers Obagi Nu-Derm System, including prescription and OTC drugs that are used for the treatment of fine lines, wrinkles, acne, photo damage, hyperpigmentation, melasma, laxity, and skin sallowness; Obagi Condition and Enhance Systems that are used before and after surgical and non-surgical cosmetic procedures.
OMPI shares began to move in February on buy-out rumors. Shares to date have continued to rise, also being helped by some strong earnings numbers.
A few weeks ago, M.E Garza of biomedreports.com told his Seeking Alpha followers that there were several more voices joining the chatter about the possible acquisition of OMPI. Shares rose 4.69% on May 15th, 2012 after being mentioned as a possible acquisition candidate for the second time in as many weeks.
M.E Garza also reported on Seeking Alpha:
Within the last few days, the Cantor analyst put out another note to his firm's clients saying that OMPI management "was evasive on the call about solicitations of interest from potential acquirers" but that offline the firm's management team indicated that "it cannot comment on discussions with suitors and will only make an announcement if a deal is underway." Cantor noted that the most recent dermatology acquisition of privately held Fougera was at a 3.55x multiple of sales, which, if applied to Obagi, would value the company at $23/share.
Almost simultaneously, Roth Capital just raised Obagi Medical Products' price target to $16 and Canaccord Genuity maintained a 'Buy' on the company with their price target lowered from $22.50 to $21.00.
Clearly, we also continue to hear offer rumors from reputable sources. As we understand it, the firm is and has been weighing several buy-out offers and one major cosmetics space player may be prepared to offer $20+ per share of the company. There are no guarantees that OMPI will take the offer, of course, but it is obvious that someone thinks this is a business worth snatching at a nice premium.
Cantor Fitzgerald analyst Irina Rivkind believes a possible candidate is Medicis Pharmaceutical (MRX), which recently announced that $450 million in new financing that will be used for M&A activity. Other potential candidates include L'Oreal (OTCPK:LRLCY), Valeant Pharmaceuticals (NYSE:VRX) and Allergan (NYSE:AGN). Recently, Fougera was sold for 3.55 times sales, suggesting an offer could be as high as $23 a share should one appear. OMPI has a very low market cap of $244.27M, adding even more attractiveness and validity to this rumor. I consider this buy-out rumor to be super solid and think an offer will be announced within 3 weeks, if not sooner. Whether or not it will be accepted is another matter that we shall see how it plays out.
Spectrum Pharma (NASDAQ:SPPI)
Spectrum engages in acquiring, developing, and commercializing prescription drug products primarily in the areas of hematology and oncology. It offers ZEVALIN, a prescribed form of cancer therapy which combines a source of radiation with an antibody; and FUSILEV for patients with osteosarcoma after high-dose methotrexate therapy, as well as to diminish the toxicity and counteract the effects of impaired methotrexate elimination or inadvertent overdose of folic acid antagonists.
Spectrum Pharmaceuticals announced promising clinical data in five poster presentations for ZEVALIN Injection for intravenous use, as well as a poster presentation and one e-abstract publication for belinostat, at the American Society of Clinical Oncology (ASCO) Annual Meeting being held in Chicago, Illinois, from June 1-5, 2012. A Phase II investigator-sponsored study in patients with stage III/IV CD20+ DLBCL found that short-duration therapy consisting of rituximab with cyclophosphamide, doxorubicin, vincristine, and prednisone given every 14 days followed by ZEVALIN resulted in a 3-year overall survival of 100%. An additional investigator-sponsored Phase 2 study demonstrated that short-duration therapy of ZEVALIN with rituximab showed complete response rate durations comparable to full-course R-CHOP in patients with first or second relapse follicular lymphoma. Clinical results appearing in an e-publication titled, "A Phase II Study of PXD101 in Relapsed and Refractory Aggressive B-Cell Lymphomas: SWOG S0520," highlighted positive data providing a foundation for the Company's current clinical program of belinostat. According to the results, two patients had partial remission at five and 13 months during the follow-up period, for an overall response rate of 10.5%, and three patients had stable disease for a prolonged period of time.
Translation: As I have been saying for months now, Spectrum will be a long term winner in my strongest opinion. The most attractive fundamental factor I see with Spectrum is its top notch management team, led by Rajesh C. Shrotriya, MD: Chairman, Chief Executive Officer and President.
From the Spectrum website:
We strive to ensure that our Company maintains its small company perspective by honoring the following characteristics:
Having total commitment to achieve the Company's goals
We are proud to be part of Spectrum and see it as "our Company"
Demonstrating a "Gung Ho" spirit in our words and actions
Working together as a team, focused on the same goals
Taking initiative and doing what is necessary to get the job done
Being responsive to change
Having open and clear communication
Having senior management that is accessible
Accomplishing our business efforts by sharing thoughts
Being cost conscious and making prudent financial decisions
Our passion to deliver better options for people suffering from cancer is behind every action we take. We will work to understand their needs and develop new therapies and supportive care to offer hope for improved disease outcomes, and improve quality of life where we can. We understand that what makes our Company great is the people; people are our most important asset.
I honestly believe that Spectrum will see a stock price around $30.00 within 3 years. I should drop by and say hello to the management at Spectrum, since its corporate headquarters are about 1 mile away from where I live in Henderson, Nevada.
The reasons I do not own shares of Spectrum is because I am "locked and loaded" in Antares Pharma (AIS) as my long term investment position at this time. Also, I missed out on Spectrum when the price was much lower, which would have allowed me to 'load the boat.' When it comes to long term small cap growth investment, I follow Mark Cubans school of thought; do the hard due diligence, if it checks out, go all in and take the risk. If Antares is bought out, which I believe is virtually certain in the next year, I would shift a lot of that money into Spectrum.
Beginning June 15th, 2012, Antares will be moving from the defunct AMEX to the NASDAQ exchange and will trade with the new symbol ATRS. Investors in Antares should take note of this change in exchanges. I expect a substantial pps jump to occur after the move to the NASDAQ as the stock will become more liquid and more accessible to larger funds.
Antares, like Spectrum, also has top notch management as evident in part from the current management team wiping off all the debt and negative growth inherited from Antares's prior management, and growing the company each year 30%-50% since they have taken over the reigns.
If we valuate Antares on what the company earns now, the stock would appear to be over valued. Antares will likely bring in around $30 million dollars in revenue this year, with most of this revenue as profit. These revenues will primarily come from royalty deals the company has made in the last few years with larger pharmas such as:
- Watson Pharma (WPI), which licenses from Antares Gelnique 3%™ (oxybutynin) gel 3%, for the treatment of overactive bladder (OAB) with symptoms of urge urinary incontinence, urgency and frequency. Gelnique 3%™ is a clear, odorless topical gel that has been shown to be an effective and safe treatment for OAB. The product is available in a metered pump dispenser, offering patients convenient dosing;
- Teva (TEVA), for Tev-Tropin® Tjet® reusable hGH -- launched August 2009, in which Antares receives strong margins on device sales, and mid-to-high single digit % royalty on overall product sales. Two Vibex auto injectors, single shot disposable products. Epinephrine (N.A. rights) & an undisclosed product (U.S rights) in which Antares receives margins on device sales, and mid to high single digit % royalty on overall product sales; and
- Pfizer (PFE), for an undisclosed product in which my due diligence along with many other investors, seems to point to a fast melt Advil tablet product.
What excites me about Antares are the recent comments the company's CEO, Paul Wotton made at a Roth Capital investors conference in California. He flatly stated that Antares will not be engaging in anymore royalty deals. He went on to state that Antares is looking for partnerships along the lines of a 50/50 split, notwithstanding that the company plans to market and commercialize most of their top line products in the future by themselves (possibly 50/50 for Vibex MTX).
I recently did a feature article on Antares for those who wish to read more on the company.
Disclosure: I am long AIS.
Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice, but rather my opinions as a writer only. Always do you own complete due diligence before buying and selling any stock.