Uncertainty Breeds Opportunity in Specialty Pharma Stock Pick From Piper Jaffray Senior Research Analyst
November 20, 2009 - The Wall Street Transcript has just published Pharmaceuticals Report offering a timely review of the Pharmaceuticals sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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David Amsellem is a Principal and Senior Research Analyst at Piper Jaffray who covers specialty pharmaceuticals. Prior to joining Piper Jaffray in 2008, Mr. Amsellem spent five years at Friedman Billings Ramsey, where he was a Senior Research Analyst covering small- and mid-cap pharmaceuticals from 2006 to 2008, and a Senior Associate on the biotechnology equity research team from 2003 to 2006. Mr. Amsellem was recognized as the number one-ranked analyst in North America for accuracy of earnings estimates in the pharmaceuticals sector in the 2008 Financial Times/StarMine "Best Brokerage Analyst" survey. He graduated from Cornell University with a bachelor's degree in industrial relations.
TWST: Any others?
Mr. Amsellem: Another one that I'd point to and sort of a deep value idea is Cephalon, CEPH is the ticker. This is the case of a company that is trading at a very low multiple - nine times 2010 earnings. It's a stock that's really been beaten up, a real underperformer, and it's a classic case of investors being very concerned about the patents on its existing products. Yes, there are major patent uncertainties, but what I think is being overlooked is that the company has made numerous investments in its R&D pipeline and has actually stockpiled a deep pipeline of products that are mainly focused on cancer, immunology and pain management.
What's interesting about that is you have a company here that has some uncertainties regarding its intellectual property but actually does have the sensible IP. So at these depressed levels, you have a cash-flow positive business, a pretty low multiple. I think your risk-reward is favorable, and what I like about Cephalon is this is a company that, I think, has done things the right way. They have made investments in novel assets, new chemical entities - in some cases biologics for difficult-to-treat diseases - but they have taken R&D risk, and then they have legitimately made an effort to build a sustainable business of novel drugs that address unmet medical needs.
Many specialty pharma companies have mainly focused on me-too drugs or tried to focus on extended-release versions of existing molecules, or just tried to slightly improve existing chemical entities, really without making any advances in terms of addressing unmet medical needs. Cephalon is actually doing that. Yes, that entails significant R&D risk, but I think that this is the kind of company that will eventually get credit for those efforts as the pipeline bears fruit.
Note: Opinions and recommendations are as of 10/09/09.
DAVID AMSELLEM
Principal & Senior Research Analyst
Piper Jaffray & Co.
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