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CVTrader is a self-taught investor who started trading in early 2000 at the height of the tech bubble. Having learned many lessons in the subsequent downward ride, he adopted a value-oriented, comparative analysis-guided investing strategy. With a Ph.D. in biological science and working... More
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  • China Yongxin Pharmaceuticals: a Puzzling Pharmacy Chain in China

    China Yongxin Pharmaceuticals Inc. (OTC:CYXN) operates wholesale and retail pharmacy chain in the Northeast region of People’s Republic of China. The company was founded in 1993 with its headquarter in City of Industry, California. It currently operates 93 retail stores, and has been profitable for many years. With an aging population, rising living standards and the rapid growth of the healthcare sector in China, this company seems to be positioned for a healthy long-term growth. I will do an analysis on its financials to see if now is the right time to invest.

    Value analysis

    Between 2006 and 2008, its revenue had grown from ~$39M to ~$59M. However, it dropped to ~$47M last year mainly due to its strategic shift from wholesale to retail. Despite the shortfall in revenue, Yongxin was able to grow its net profit from ~$4.9M in 2008 to ~$5.2M last year which boosted a net profit margin of ~10%. The growth in net profit was mainly due to an increase in the portion of higher profit margin retail sales. With ~35.1M share outstanding at the end of 2009, the company has a market cap of ~$25M which gives it a price to sale ratio of ~0.5 and a P/E <5. Compared to giant pharmacy chains like CVS caremark (NYSE:CVS) and Walgreen Co. (WAG); Yongxin looks like a deep value stock.

    Recent private equity transactions

    Since last August CYXN has been trading between ~$0.3 and ~$0.8. However, the company had a couple of private equity sales in the last few months at prices substantially lower than the open market price. In January, it issued $700K worth of secured convertible notes bearing 10% interest with a conversion price of $0.20 per share. See SEC filing here. Then, in April, it sold 5,890,500 shares of common stock to certain undisclosed investors at a price of $0.20 per share for an aggregate of ~$1.2M. See SEC filing here. Why the company sold those equities at ~60% discount to its stock on the open market is really beyond me. I think the company is still lack of shareholder transparency and stringent corporate governance. Despite the attractive valuation, this really gives me pause in investing in the company.

    Potential opportunities and risks

    CYXN is in an industry with tremendous amount of growth potential and its current valuation is very attractive. Insiders own ~20% of the company, but their interest doesn’t seem to align with public shareholders as evidenced by the recent equity transactions. Aside from its founders, none of its board directors own any share of its common stock. And the fluctuation in its revenue numbers in the last several years also makes me a bit nervous. The management hasn’t given any outlook for fiscal year 2010 yet. I think I will wait until its Q1 announcement to see if the management can generate any growth in sales, thus gives me confidence in investing in the company.



    Disclosure: No position at time of writing.
    Tags: CYXN, CVS, WBA
    May 03 11:30 PM | Link | Comment!
  • A Small Setback for SciClone Pharmaceuticals

    SciClone pharmaceuticals (NASDAQ:SCLN) is small-cap biotech that currently markets ZADAXIN for hepatitis almost exclusively in China. It’s profitable, with a solid balance sheet and an interesting pipeline. For an overall analysis of the company, see my recent instablog here.

     

    SCV-07 and oral mucositis (OM)

    Today, SciClone announced its topline results from a Phase 2 clinical trial of SCV-07 for prevention of OM, which is the painful inflammation and ulceration of the mucous membrane in one’s mouth. It can happen to lot of cancer patients undergoing chemoradiotherapy, particularly head and neck cancer patients. The National Cancer Institute estimates that ~400K patients in the U.S. suffer from OM during cancer therapy. To learn more about this market, see my article here. SCV-07 is small peptide inhibitor of STAT-3 signaling which is believed to have immuno-modulation activity, thus can prevent or delay the onset of severe OM.  

     

    The results of this study are somewhat disappointing. Basically, no statistically significant improvement in the primary end point (delay in the onset of WHO grades 3 to 4 OM) was seen in two doses of SCV-07 after approximately seven weeks of treatment. However, additional analysis showed some benefits in patients with WHO grades 2 to 4 OM. Below is the actions the company intends to take:

     

    “Based on these study findings, SciClone intends to initiate discussions with the United States Food and Drug Administration regarding the design of a second phase 2 study of SCV-07 for the prevention of OM, which would involve higher doses. SciClone has also submitted a late-breaking abstract on results of this study for the 2010 American Society of Clinical Oncology Annual Meeting.”

     

    My takes on this event and SciClone in general

    OM is a niche market, and with quite a few approved treatment options available right now. Even getting approved few years down the road, I don’t see SCV-07 being a huge value driver for SciClone. So today’s negative news is just a small setback for an otherwise fast-growing biotech, the less than 5% drop in stock price seems to agree with my assessment. I think the next pivotal milestone for SciClone is the regulatory decision on its DC beads for treatment of liver cancer in China. That result is expected later half of this year. Another interesting product candidate is ondansetron RapidFilm, which was recently approved in 16 major EU countries. SciClone licensed the commercial rights in China, Vietnam, Hong Kong, and Macau pending approvals in those regions which are expected some time in 2011. With a profitable drug (ZADAXIN), SciClone certainly has wind at its back. I see limited downside risk with its stock now at ~$3.5 with a forward P/E of ~10.



    Disclosure: No position at time of writing. I intend to accumulate shares at <$3 levels.
    Tags: SCLN, ACCP, BIOVY
    Mar 31 7:14 PM | Link | 1 Comment
  • PDL BioPharma: a High Dividend-Paying Biotech!

    PDL BioPharma (NASDAQ:PDLI) is a very unique biotech company owns a portfolio of valuable patents that bring in royalties from licensed products. It's predecessor was Protein Design Labs which pioneered the humanization of monoclonal antibody technology in the 90'. Many of the humanized antibodies turn out to be blockbuster drugs for the treatment of cancers and a host of other previously untreated diseases. The most notable marketed drugs that licensing PDLI's technology are Avastin and Herceptin from Genentech/Roche (OTCQX:RHHBY), and Tysabri from Elan (NYSE:ELN) and Biogen (NASDAQ:BIIB). These drugs are so successful on the market, PDLI pulled in over $300 million of royalties from its licensees last year alone. PDLI's stock closed at $6.37 on 3/26/10, which is ~32% off its 52 week high of $9.32. I will do an analysis to see if it's a good opportunity to accumulate PDLI's shares.


    Company history and financial analysis
    Protein Design Labs started out as a drug discovery company, but gradually it sold its commercial products and finally spun-off its R&D operation as Facet Biotech (FACT) in December 2008. After this dramatic metamorphosis, PDLI emerged as a technology-holding company which manages its patent portfolio and license agreements. It's a highly profitable company with 2009 revenue of $318 million and less than 10 employees.

     

    To enhance shareholder value, it pays sizable “special” dividends. In 2009, it paid three dividends totaled $2.67 for a yield of ~30%. For 2010 it plans to pay two dividends of $0.5 each, at current price of $6.37 that's a yield of ~15%. Below is a table highlighting last year’s key numbers:

     

     

    Q1

    Q2

    Q3

    Q4

    Rev($M)

    62.6

    125.9

    71.4

    58.3

    Ope Inc ($M)

    57.9

    120.3

    66.2

    52.7

    Net Inc ($M)

    37.5

    77.2

    46.4

    28.6

    Ope Cash ($M)

    27.7

    75.7

    29.4

    54.2

    Dividend

     

    $0.5/S ($60M)

    $0.5/S ($60M)

    $1.67/S ($200M)

    As you can see, PDLI enjoyed an unbelievable ~60% net profit margin, and generated ~$180 million of cash among which ~$120 million was paid as dividends. The Q4 dividend of ~$200 million was paid from a $300 million securitization transaction.

    Future dividend yield
    Going forward, I believe the company will be able to pay a similar portion of itsoperational cash flow as dividends. Since its key patents will expire in 2014, PDLI is expected to receive royalties until around 2015-16. I’ll do a calculation to estimate total potential dividend payout in the next several years.

     

     

    2010

    2011

    2012

    2013

    2014

    2015

    Rev($M)

    ~350

    ~380

    ~420

    ~460

    ~510

    ~560

    Net Inc ($M)

    ~210

    ~220

    ~250

    ~270

    ~300

    ~330

    Dividend ($M)

    ~120

    ~130

    ~150

    ~160

    ~180

    ~200

    In the last five years PDLI’s revenue had a CAGR of ~24%. For my above calculation, with a conservative CAGR of ~12% PDLI will be able to generate revenue of ~$2.7 billion with net income about ~$1.6 billion. Assuming a dividend payout ratio of ~60%, total dividend can amount to ~$1 billion, which is about $8/share using current outstanding number of shares (~119 million). This will leave $600 million cash more than enough to pay down current net debt of ~ $400 million.

    Potential risks and opportunities
    This is a highly-profitable business that still has some upside potentials. The management is actively seeking new licensees, and some current licensees have late-stage product candidate may be approved fairly soon. These include Solanezumab and Bapineuzumab for Alzheimer’s disease developed by Eli Lilly (NYSE:LLY), Johnson & Johnson and Pfizer (JNJ, PFE) respectively. Of course, shares may be depressed further due to discontinuation of licensed products, which is very unlikely. In my opinion, the downside risk is really limited. This represents a rare high-income-generating stock for the next 5-6 years.

     

     

     



    Disclosure: No position at time of writing, but intend to accumulate at <$6 levels!
    Tags: PDLI, RHHBY, ELN, BIIB, LLY, JNJ, PFE
    Mar 29 11:41 PM | Link | Comment!
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