2 Pharma Companies With Minimal Debt, Demonstrating Great Upside Potential

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Includes: AFFY, FMS, PPHM
by: Matt Schilling

As all three major US indices traded slightly negative on the day, I wanted to explore two pharmaceutical companies carrying little or no debt and highlighting what could be very positive catalysts for each company. For this screen I used the establishment a total debt to total cash ratio, and it should be noted that I consider any ratio under "1" very healthy, under "2" satisfactory, under "3" cautionary, and anything over "3" a warning sign.

Peregrine Pharmaceuticals (PPHM), trades in a 52-week range of $0.39/share (52-week low) to $1.26/share (52-week high), has a market cap of $91.38 million, and was given a ratio of "0" based on the statistical calculations of my formula. PPHM currently has $19.76 million in total cash on its books (it should be noted that the company currently has -$34.01 million in operating cash flow, and -$21.0 million in free cash flow) and currently has zero in total debt. That equates to a total debt to total cash ratio of 0, which in my opinion, is a very positive catalyst moving forward.

On Wednesday, the company presented at the JMP Securities Healthcare Conference in New York, and noted that the trials related to Bavituximab, through its Second-Line NSCLC, could be well prepared in the very near future for Phase III clinical trials. As a result of that presentation, the stock was up as much as 26.5% during intraday trading. There is a secondary factor investors should also consider with regard to PPHM. First, analysts are estimating that the company will grow at a rate of 13.3% for quarter. When the company announces earnings on July 16th, and if they are able to surpass current estimates of -$0.13/share, the growth number could be easily exceeded.

Affymax, Inc. (AFFY), trades in a 52-week range of $3.93/share (52-week low) to $16.25/share (52-week high), has a market cap of $515.98 million, and was given a rating of a "1" based on the statistical calculations of my formula. AFFY currently has $92.40 million in total cash on its books (it should be noted that the company currently has -$70.14 million in operating cash flow, and -$74.14 million in free cash flow) and currently has $10.0 million in total debt. That equates to a total debt to total cash ratio of 0.108, which in my opinion, is a very positive catalyst moving forward.

On Wednesday, the company announced a significant deal with Fresenius (FMS), which plans to sell its kidney therapy drug, Omontys here in the US. "Fresenius, based in Bad Homburg, Germany, will buy the drug that boosts red blood cell production for more than 100 of its U.S. dialysis centers in the next few weeks while it considers broader use, Palo Alto, California-based Affymax and Osaka, Japan-based Takeda said today in a statement… The 100 centers represent about 5 percent of Fresenius' facilities in the U.S., an opportunity that may be worth $700 million in peak sales of Omontys, Ian Somaiya, an analyst at Piper Jaffray & Co. in New York, had written in a note to clients".

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.