3SOF

Okay heres one for the watch list. I'm already heavily into this one,  and have alot of confidence in it, some shares higher and some lower. I bought about 3X more than i intended last year, but I also intended to sell some of the higher priced shares before the end of last year and take the tax loss if their was any.  At  EOY, I couldn't bring myself to sell any though as the extended PDUFA date was Jan 2, price was very depressed and I was pretty damn confident new Sular would be approved, though it seemed a major concern to others. Now that it's been approved I intend to hold on to my full overweight position with comfort.  I'm also very confident that this will be a very solid LT investment, although it might not be a rocket ship. Confirmation of double bottom breakout would be at $23.50, I guess? Very heavy short interest. Care to take a look and give an opinion David?

Here's the latest PR from today

Sciele Expects to Launch Six Products in 2008; Reaffirms Revenue and EPS Guidance for Full-Years 2007 and 2008
Wednesday January 9, 12:44 pm ET


ATLANTA--(BUSINESS WIRE)--At the JPMorgan 26th Annual Health Care Conference in San Francisco, Sciele Pharma, Inc. (NASDAQ:SCRX - News), today announced that it will be launching during the first quarter of 2008 its new Sular® formulation, which was recently approved by the Federal Food & Drug Administration (FDA) in four dosage strengths: 8.5-milligram, 17-milligram and 25.5-milligram and 34-milligram dosages. In addition, the Company also plans to launch five new products in 2008: 120-milligram and 40-milligram fenofibrate doses for treatment of mixed dyslipidemia; Prandin® (repaglinide) for type II diabetes, and, upon FDA approval, PrandiMet® (repaglinide/metformin) also for type II diabetes; a head lice asphyxiation product upon FDA approval; and a new Women's Health product.

Sciele also reaffirmed the Company's full-year guidance for both 2007 and 2008. As previously announced, full-year 2007 revenue will be within a range of $375 million to $385 million, and full-year 2007 diluted earnings per share will be within a range of $1.53 to $1.58 per share, after a non-cash expense of $0.10 per share related to the Company's redemption of its 1.75% Convertible Notes. Also as previously announced, full-year revenue guidance for 2008 will be within a range of $440 million to $455 million and full-year 2008 diluted EPS within a range of $1.97 to $2.07 per share. This guidance for 2007 and 2008 assumes an R&D expenditure rate of approximately 8% of revenues and does not include any unapproved products or any potential restructuring time charges related to the new Sular conversion.


Lots more about it here
http://www.3stocksonfire.org/trading/index.php?topic=10267.0

Reports Citigroup (C.N: Quote, Profile, Research) and Merrill Lynch (MER.N: Quote, Profile, Research) were seeking to raise more capital with foreign partners to offset losses stemming from the credit crunch may help financials.

Interest rate decisions from the European Central Bank and the Bank of England may restrict trade along with anticipation before a much-awaited speech from Bernanke, who speaks on "Financial Markets, the Economic Outlook and Monetary Policy" at an event at 1800 GMT.

"As fears continue to circle around the state of the US economy investors continue to try and pick up the so called defensive stocks. So far drug makers and mining stocks are proving the most resilient to any economic downturn in the U.S.," said CMC Markets in a note.
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I hope bernanke has something bullish to say today.

QuoteI hope bernanke has something bullish to say today.

I hope not, so that the market cleans up the weak hands sooner rather than later.

My take is the market will nosedive whatever Bernanke says today ... it's part of the game to discredit the FED before the bottom.

You know that I'm not particularly smart when studying pharma stocks, but I'll make a more or less in depth analysis on SCRX next.

Quote from: David Randolph on January 10, 2008, 11:36:20 AM

QuoteI hope bernanke has something bullish to say today.

I hope not, so that the market cleans up the weak hands sooner rather than later.

My take is the market will nosedive whatever Bernanke says today ... it's part of the game to discredit the FED before the bottom.

You know that I'm not particularly smart when studying pharma stocks, but I'll make a more or less in depth analysis on SCRX next.

David, I'm not very smart on these either and especially biotech, which I usually avoid completely, as I feel totally inadequate in analyzing them. But SCRX is a money making pharmaceutical and I think I researched SCRX pretty thoroughly. I hope you read through my thread on the member board, I think it might be a pretty decent synopsis of what is going on there.

Thanks for your attention in this.

Just below the pivot point now, but I don't think theres enough volume to push it through yet. Somebody has a huge short position here and I don't think it's all retail. More likely the heavy institutional interest has probably "shorted against the box" to protect their very large holdings. If that's the case, then IRS rules set a time limit to buy back those shorted shares in order to avoid an effective taxable gain on sale in the prior year and then also have to hold the "long" position after that for a certain time period after covering the short. They changed the rules several years ago because big guys were using to avoid ever paying tax on gains. It's can still be beneficial, but now they have to play by the IRS regs.I don't recall the exact regs, I need to look it up again. At any rate, again I wouldn't be surprised to see it held back until after options expiration. I think max pain was $22.50. I can't find any other explanation for the very large short interest.

Above the pivot now and the 200DMA.

Hmm, BigSully1, this looks like an interesting story, it's a pity I don't have a lot of time before the open.

I know you're usually more into trading than investing for the long term, so I notice your strong hands on this one in particular.

The stock is off a bit and now it trades at just about 10 times the 2009 guidance:

Quotefull-year revenue guidance for 2008 will be within a range of $440 million to $455 million and full-year 2008 diluted EPS within a range of $1.97 to $2.07 per share.

Estimates for 09 are even higher.

Drug makers don't trade this low unless there's a problem. Take VPHM and ASPV, for example. They were very cheap, but that was because of upcoming generic competition or stuff like that.

Anyway, that didn't stop ASPV from being taken over at a reasonable premium. It was just too cheap, I guess.

This is very interesting Big, I'll come back to this stock before I move on to another one. This will be my priority because the sector can be viewed as a safe haven now (the general market is breaking the short term ascending trendline at today's open) and the stock seems to have very attractive fundamentals.

Here's what I'll do. I'll read your whole thread and then I'll do my best to find the bears case. They must have one, or else, why is the stock so cheap and the relevant short position?

I'll come back to SCRX soon. Thanks

David, I thought my hands were really strong on it, but evidently not so. I relied on instinct and my limited technical knowledge to sell it before last ER as I was baffled why so cheap and why the then huge short position was refusing to cover. Short interest is much, much lower now though.

I figured with restructuring, inventory reduction on old Sular, new drug startup costs that there could be a ST problem, so I sold.

The ER looked very good on the surface and most analysts very bullish, but listening to the CC call, I discovered  they were offsetting these costs by a reduction in thier sales force  they "only" expected to be 80 to 85% successful in the switchover to new Sular (their main rev generator), and all the other new drugs coming out to make up for the shortfall.

I am still very much interested in the company, very much like management and definitely want to buy back at soon as I feel it should be a very good LT investment, resistant to recession, was hoping to pick back up around $17, but have my doubts now whether it'll get there and will probably have to pay more than that.

I'm usually hesitant to buy a stock that is already so very heavily owned by institutions, but this one is hard for me to resist, IMO.

Looking forward to your opinion, David.

Quote from: BigSully1 on April 11, 2008, 10:32:40 AM
David, I thought my hands were really strong on it, but evidently not so. I relied on instinct and my limited technical knowledge to sell it before last ER as I was baffled why so cheap and why the then huge short position was refusing to cover. Short interest is much, much lower now though.

I figured with restructuring, inventory reduction on old Sular, new drug startup costs that there could be a ST problem, so I sold.

The ER looked very good on the surface and most analysts very bullish, but listening to the CC call, I discovered  they were offsetting these costs by a reduction in thier sales force  they "only" expected to be 80 to 85% successful in the switchover to new Sular (their main rev generator), and all the other new drugs coming out to make up for the shortfall.

I am still very much interested in the company, very much like management and definitely want to buy back at soon as I feel it should be a very good LT investment, resistant to recession, was hoping to pick back up around $17, but have my doubts now whether it'll get there and will probably have to pay more than that.

I'm usually hesitant to buy a stock that is already so very heavily owned by institutions, but this one is hard for me to resist, IMO.

Looking forward to your opinion, David.

So you're already out. Well, anyway, I went looking for the bears case on the stock and found this:



Underlying business increasingly dependent upon price increases to support growth, thus stock is not deserving of growth multiples even if Sular switch is successful. Apart from Sular, Triglide and Prenate DHA, all of Sciele's other internal brands are facing Rx declines--in many cases double digit declines. Sular growth has slowed to a trickle and the overall prenatal vitamin franchise isn't doing much better. As a result, we think the stock will continue to trade at low multiples regardless of the outcome with the Sular switch. See prenatal vitamin and Sular details below.

Sular switch carries significant risk--three chances to fail and only one path to success: We believe there is only one way to succeed and it requires FDA approval at the end of this week (it was two months later, in January 2, 2008) followed by a flawless switch to the new version
in 1H08. Even if management successfully executes its strategy, we see little opportunity for appreciation from current levels until 2H08 at the earliest. We think FDA rejection or delay could trigger a 20%-40% drop in the stock. If the new formulation is approved and the switch is slow the stock could still have an estimated 10%-20% downside in 1Q08. Finally, if formulation is approved but the switch fails in the face of generic competition for Sular, the downside could
be an estimated 20%-40% but might not occur until 2Q08.

Pipeline not meaningful until 2009 at the earliest. As management detailed in its call yesterday, apart from the Sular line extension there is only one other new product opportunity for them in 2008. The head lice product is novel but unlikely to be meaningful (perhaps $10-$15 million in 2008) even if FDA approves it for marketing (PDUFA April 15, 2008).

Details

Prenatal vitamin business struggling to grow despite strong Prenate DHA launch: As the chart depicts, most of the growth in Prenate DHA prescriptions is coming from Sciele's other prenatal vitamin brands. Thus, the overall growth of the franchise is not as attractive as the Prenate DHA prescription trends might otherwise suggest. From recent weekly data it appears the overall prescription growth for the franchise is trending around 2-3%. With the benefit of price increases, revenues from the prenatal vitamin line may grow in the low teens but we believe that will not be enough to support the overall growth at Sciele if the management is unable to achieve the 80%-85% switch rate from old to new Sular next year.

Exhibit 1: Prenate & Optinate Franchise Rx



Days of Sular Prescription Growth Appear to Be Over
Despite additional product acquisitions (Altoprev/Fortamet in 2005), product launches (Optinate and Triglide 2005, Ostiva and Prenate DHA in 2007), co-promotion agreements (Zovirax 2007) and a company acquisition (Alliant 2007), Sular continues to account for nearly 30% of Sciele's sales. The fact that it does is a testament to the success management has had in growing prescriptions and price for the brand thereby generating compound annual growth in revenues of about 25% for the past three years. To its credit management has done an excellent job of revitalizing a brand that had been dead even before it was acquired by the prior management team. Each time a new plateau was reached management expanded the sales force and continued to drive prescription growth. However, management appears to have failed in its efforts to defend the brand from the generic entry in late March for the most prescribed drug in its class (Norvasc) and the resulting deceleration in Rx growth may mark the end of Sular's days of prescription growth. The presence of generic Norvasc is only likely to make it even more difficult to effectively switch large proportions of Sular prescriptions to the new Sular formulation, if it is approved. If the new formulation is not approved, Sular is likely to face stiff generic competition in 2H08. Our published model assumes an incomplete switch (intermediate case scenario). In a worst case scenario we think earnings in 2008 could be as low as $1.40-$1.45 for 2008 with an even lower implied run-rate for 2009. Either way, we think its highly unlikely the brand can sustain the 25% revenue growth it contributed in the past few years, which we believe will make more difficult to drive overall growth for Sciele.

Exhibit 2: Sular Weekly Rx Growth


Valuation
We believe management guidance of $1.87-$1.97 may be a bit optimistic and is clearly dependent upon upon approval and successful switch. Any missteps in execution would expose investors to significant downside that we have described above. As a result, we are reducing the P/E multiple we apply to our 2008 estimate from 16x to 12X. The 12x multiple is more consistent with those currently being applied by the markets to companies with significant risk to their business models. Applying the reduced multiple to our 2008 estimates results in a reduction of our target price from $28 to $21.

Price Target Impediment
Generic risk related to Sular coming off patent in 2008 includes headline risk associated with possible tentative approval of an ANDA before, and failure by SCRX to gain FDA approval of a new formulation prior to, the patent expiration. Upside from Zovirax could be lost if a generic version is approved. Dependent upon growth of prescriptions for products gained in acquisition of Alliant along with co-promotion agreement for Allegra. Other risks include but are not limited to, negative changes to current prescription trends, clinical risk, manufacturing risk, commercialization risk, intellectual property and litigation risk, national health care policy risk, negatively perceived news, and sector and overall market volatility risk. Any of these factors could impede achievement of our price target.

My humble opinion now: SCRX is a pharmaceutical stock with an attractive valuation, but also with significant risks, mostly coming from generic competition for Sular and slowing growth anyway. It's a similar case to VPHM, as suspected.

I'm not into buying "cheap" stocks anymore. They're cheap for a reason ... and it usually takes a meaningful event to change investors perceptions on the stock. It's hard to get any multiple expansion while the risks to the business model persist.

But of course, we'll keep it under the radar. Thanks BigSully1