We are bearish on Meridian Biosciences. Can the molecular diagnostics market propel the stock?

Wall Street loves Meridian Biosciences (ticker VIVO) right?

Generic Company Teva

We are now covering  Meridian Biosciences and the company’s forecast have them earning between 85 cents to 89 cents per share during the current 2012 year. This would be a 23% to 25% increase which is very aggressive although 4Q profit jumped 26%.

There are concerns about the companies liquidity ratios and cash conversion cycle. Given my credit training background at Citigroup I will say that these are sometimes early indicators of potential profitability problems but only if there are customers that make up 30% of eligible A/R’s.

It is true that you use  accounts receivable and days sales outstanding to judge a company’s current health and future prospects.

However there are a number of factors that have to be taken into account and you have to look at trends within the industry (i.e comps) to see if this is a systemic problem.

Sometimes, problems with AR or DSO simply indicate a change in the business like the acquisition of Bioline. However, if AR  grows more quickly than revenue, or DSO that’s ballooning, that can suggest a desperate company frontloading by a company that’s trying to boost sales by giving its customers overly generous payment terms. Or it can indicate that the company sprinted to book a load of sales at the end of the quarter.

Would Meridian Bioscience do this? Heck yeah because the only metric that Wall Street is looking at is Profitability, Revenue and growth in molecular diagnostic market.

Is Meridian Bioscience sending any potential warning signs?  We’ve done some channel checking and fundamental research to find out.

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Here are the metrics that we are tracking

1) Will top line sales be between $183 to $ 192 million?

2) Can the Diagnostic business sales  grow 20% to $148 million?

3) Can Meridian place Illumigene in more labs? And therefor expand the available tests? We have talked with some of the biggest folks in the supply chain so sign up for exclusive interviews.

4) Meridian says that molecular diagnostics will account for 28% of diagnostic sales next year. Up from 10% last year. Can this happen?

5) The stock is currently trading at 21 times forward earnings? Is it justified? Shares dropped 36% to current price of 17.

6) Lastly can the stock rise to over 22 next year?

Wall Street is keeping it’s expectations low for 2012. ..85 cents a share but cn Meridian exceed this and show Wall Street that they can grow more?

A critical business risk for any company is a reliance on one line of business….Meridian generates almost 80% of it’s revenue from it’s lab test business or diagnostics. The remaining sales come from life sciences business that makes reagents and other chemical compounds for lab tests.

Right now 50% of meridians sales come from test that detect ecoli and other food born bacteria

Meridian is currently restructuring their european business and cutting costs after the 2010 acquisition Biolone.

The biggest opportunity the company says is in molecular diagnostics market which uses DNA to detect disease causing pathogens.
The market potential is tremendous at $4.7 billion market. Last year Meridian launched it’s Illumigene testing platform and now has 650 machines in labs and hospitals

Other Headwinds: Meridian profits didn’t cover dividend payments in last 2 fiscal year. Although dividend was paid. Although with no bank debt there was no convenant breach so Meridian’s management still has a policy of paying 75 to 85% = earnings so the annualized dividend of .76 cents is on mark.

Stay tuned as we cover this stock.

Stalwart Health Care Large Caps need the following characteristics

Our mid and large cap pharma 2012 picks have the following market characteristics

1) Predictable Earnings
2) Good Cash Flow
3) High Return on Investment
4) Conservative accounting (no GAAP gimmicks)

5) Strong Management

Our analysis focuses on extensive technical and channel research.

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Our due diligence includes determining current valuation levels vs the market, analyzing competitors stock prices with similar financials

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CVS/Caremark PBM’s drops drugs and ramps up strategy of promoting generics over brand name pharma! Branded Pharma fits back with co-pay rebates

Generic Company Teva

We told you about 6 months ago that coupons/rebates were a major new strategy that branded pharma was using to fight back against cheaper generic alternatives. 

Today it was announced that CVS Caremark (one of the largest PBM businesses) will stop  covering 30 drugs next year ranging from diabetes, erectile disfunction and others.  The reason? $$$ of course!

The question

 What does this mean for your portfolio if you have branded or generic alternatives?

  The answer

 This announcement favors the generic alternatives ( large or mid cap generic companies)

Reason

Companies like CVS/Caremark are vertically integrated and not only run thousands of retail drugstores but also have a substantial Pharmacy Benefits businesses that handle processing of drug benefits for companies and health plan customers. PBM’s tend to make “greater profit margins” from generic drugs than the branded alternatives.  So it makes sense that they are promoting the generic companies drugs. In  addition CVS/Caremark don’t like manufacturer discounts (ie rebates) that big pharma is using to combat the cheaper alternatives. These rebates negate c-pay levels set by the health plans to steer members toward cheaper drugs

What’s next in 2012

The move by CVS/Caremark will be the first of  many strategies PBM’s will use to combat the so-called copay cards from drug makers.  It is estimated that 50% of the therapies that CVS PBM has targeted by customers use the co-pay cards. These co-pay cards (ie coupons) give customers a break  by offsetting higher branded alternatives (such as Viagra, Lipitor) with a coupon to defray the costs.  This is big pharma’s answer to combatting generics and giving customers a cheaper alternative.

So CVS/Caremark has decided to drop Eli Lilly’s Insulin products (Humulin), Bayer’s (Levitra) and 32 others.

Read our research report at www.57thstventures.com  Search the site or go to the free sample Health Care reports

Norvartis has upside but patent expirations are a cause of investor concern

In on corner we have a 54 Billion dollar diversified pharma juggernaut with

4% dividend yield

147 drugs in its pipeline including kidney-cancer dug Afinitor, MS drug Galvus and hypertension drug Tekturna

Diversification of business including Sandoz ($8.5 billion in sales), consumer product business ($6.2 billion) and vaccine sales of $2billion

 

So what’s the problem

Well 60% of their current $54 Billion is in branded pharma and 3 blockerbuster have looming patent expirations including

Diovan – High Blood pressure that’s facing patent expiration in 2012

Gleevec – Cancer that’s facing patent expiration in 2013

Zometa – Cancer that’s facing patent expiration in 2016

so it’s recent focus on “cost control” (i.e. laying of 2,000) is merely a stop gap measure to preserve operating margins and flow thru to EPS

the real question is  Can they grow top line revenues to command such a healthy premium over Pfizer?

We at 57thstresearch DOES NOT  think they can get to a stock price of 70 and a 12+ forward earnings range without another ALCON type of acquisition.

We say wait and see and don’t load up on NVS at this current price.

Check our other free research on NVS here www.57thstventures

Buy and Bill Model and approval of generic bilogicals. Two of the biggest questions in health care

The market for global health care sector has changed forever.  The buy and bill model has taken the lucrative health care industry and turned it upside down. It’s all about the ability of the doctor to promote “the spread” (ie the reimburseable average selling price +. 6%) and this is for injectibles only. The other big question is can the FDA approve generic biologicals? Currently there is no process for doing this. Why should you care? If you have companies like generic juggernaut Teva in your portfolio you should care.

Read more here

Generic Drug Delays may be over..Cipro case will decide…watch out Branded Pharma

 

Technology Investments are changing clinical studies in Pharma and Biotech

Changing Technology is innovating drugmakers supply chain

Health information access is changing the ways drugmakers develop medicines and communicate with doctors, insurers and patients. Better info from patient records is helping companies design more cost-effective clinical trials and tailor marketing materials to the people who most need them. For example, mobile phone software can help patients find clinical trials for cancer or track blood-sugar levels.

Large Investments by drugmakers are falling behind non- pharmaceutical companies, including  General Electric Co., Telus Corp., Canada’s third-and International Business Machines Corp., which have committed to spending at least $20 billion on health-related information services. Pharmaceutical companies have invested “a small fraction of that but over the next decade, monitoring patient care and proving results will be an increasing part of their business.

Applications created for Apple Inc.’s iPhone include a German language DiabetesMapp, which helps patients map specialists nearby, by A Abbott Laboratories; Merck’s Vree for diabetes education and tracking of blood glucose, nutrition, and activity; and Novartis’s VaxTrak to keep records of vaccinations.

Stay tuned for more updates at www.57thstventures.com

Amgen’s Bone Drug Denosumab Cleared could post $2.4 in revenue by 2015

AMGN is a buy

Amgen rose 86 cents in extended trading after the FDA’s action was announced. The shares gained $1.27, or 2.4 percent, to close at $55.14 in Nasdaq Stock Market composite trading. Amgen has declined 1.8 percent in the past 12 months.

Amgen Inc.’s osteoporosis drug denosumab was approved by U.S. regulators for reducing fractures in prostate and breast cancer patients, an indication that could boost sales to $2.4 billion in five years.

The FDA finally let Amgen move into the market for cancer treatment with a drug first approved in June for treating osteoporosis in older women.

Amgen, the world’s largest biotechnology company, HAS BEEN REALLY LOOKING to denosumab to return it to growth, after four years of virtually unchanged revenue.

Competition will include Novartis AG’s Zometa, which had 2009 sales of $1.5 billion. Denosumab, which will be marketed as Xgeva, may reach sales of $2.4 billion in 2015, said Yaron Werber, a Citigroup analyst in New York.

The drug was approved to reduce fractures and surgery in patients whose breast, prostate or other solid tumors have spread to their bones, Sales may rise by another $500 million if and that’s a BIG IF the company shows that denosumab can keep cancer from spreading to bone,.

‘Multibillion Dollar Product’

“If that works, that will make Xgeva a multibillion-dollar product globally and dramatically enhance appetite for the stock,

Denosumab targets a protein called RANK ligand that Amgen scientists discovered in the mid-1990s. This protein works with others in a process that routinely breaks down old bone in the body and replaces it with new. It also plays a role in weakening the bones of people withosteoporosis and cancer.

RANK Ligand

When women’s estrogen levels fall after menopause, or when cancer spreads to the bones from other parts of the body, it stimulates production of RANK ligand, intensifying bone destruction. Denosumab, a synthetic version of an immune cell, inhibits RANK ligand and reduces bone destruction

The most common serious side effects of denosumab seen in clinical trials were low calcium levels in the blood and osteonecrosis, or bone decay, in the jaw, Amgen said in the statement. The bone loss occurred about as often with denosumab as it did with Zometa, while low calcium was more common among users of denosumab. In one study of prostate cancer patients, 2.6 percent of those taking denosumab developed osteonecrosis

In breast and prostate cancer patients, malignant cells spread to bone in about 65 percent to 75 percent of cases, When the tumors replace healthy bone tissue, it may cause pain, swelling and fractures and need to be treated with radiation, chemotherapy or amputation.

Delaying Fractures

Amgen conducted a series of studies that measured how long it took on average for patients taking either denosumab or Zometa to experience their first “skeletal-related event,” a fracture, spinal cord compression, or the need for surgery or radiation.

One of these studies, submitted to the FDA, showed that denosumab delayed fractures and complications 20.7 months, or three months longer than Zometa in 1,901 prostate cancer patients whose tumors had spread to their bones. In another study of 2,046 breast cancer patients, denosumab delayed fractures or complications longer than Zometa.

Denosumab also kept fractures at bay longer than Zometa in patients with a variety of other tumor types, although the difference wasn’t statistically significant, Perlmutter said. For patients with multiple myeloma, Zometa outperformed denosumab. While the drug wasn’t approved today for myeloma, Amgen is starting a new study of patients with that condition.

Concern is Slow Osteoporosis Sales

Denosumab’s use in osteoporosis since it was approved has lagged behind analyst’s predictions. It had $10 million in sales in the quarter ending Sept. 30, below the $31 million expected

Sales for treating osteoporosis are likely to increase as doctors become comfortable with the medicine and get used to a complicated billing system. Use in cancer presents the biggest opportunity for now

That’s because the tumor patients should get the drug 12 times a year, compared with twice-yearly shots for osteoporosis patients, Perlmutter said. The recommended dose for people with cancer is also twice as large.

victory for Amgen with its new drug Prolia…..60 soon?

AMGEN (AMGN) Stock has got a nice bounce from drug approal…  

It’s another victory for Amgen with its new drug Prolia. The U.K.’s cost-effectiveness watchdog has recommended use of the bone treatment by the National Health Service, in women at risk of fractures who can’t take existing drugs.

Generic Drug Delays may be over..Cipro case will decide…watch out Branded Pharma

The U.S. government’s decade-long fight to limit drugmakers’ ability to keep generic medicines off the market may reach “a turning point” soon, Federal Trade Commission Chairman Jonathan Leibowitz said.

The FTC is counting on a review by an appeals court to break a deadlock over agreements made by brand-name drugmakers that it says delay the introduction of lower-priced generic medicines. The focus is on the 2nd U.S. Circuit Court of Appeals in New York, which may decide by August whether to review a deal between Bayer AG and Teva Pharmaceutical Industries Ltd.’s Barr unit on when a generic version of the antibiotic Cipro can go on the market.

The Cipro case “signals a renewed concern about these pay-for-delay deals, and hopefully it will mark a turning point towards a legal rule that prohibits brand pharmaceutical companies from paying off their generic competitors to sit it out,” Leibowitz, 52, said in an interview. The review could bring the issue of agreements before the Supreme Court.

The fight pits drugmakers against the FTC, the Justice Department, pharmacies such as CVS Caremark Corp. and President Barack Obama, who cited the greater availability of generic drugs as a way to reduce health-care costs. There also is an effort in Congress to restrict the settlements.

Licensing Deals

The FTC contends brand-name makers offer generic-drug companies licensing rights on a product or other compensation in exchange for an agreement on when cheaper drugs are introduced. The agency said it supports settlements, except when there is some sort of financial consideration.

Medicines that generate about $92 billion in sales will face generic competition through 2014 because of expiring patents. Medicines accounted for $250.3 billion in U.S. sales for brand- name drugmakers in 2009 and $35.8 billion for generic firms, according to Norwalk, Connecticut-based IMS.

Defending valid patents is vital cause If the branded company loses, it loses its franchise.!!!

Cephalon is being sued by the FTC, which contends the drugmaker paid more than $200 million for generic companies to drop their challenge to patents on its sleep-disorder drug Provigil. Cephalon says the settlements are in accordance with patent law.

No Delay

In the Cipro case, CVS and other pharmacies said Bayer paid $398.1 million for Barr to drop its patent challenge. David Stark, general counsel for Teva’s North America unit, said generic-drug makers aren’t delaying marketing products as a result of financial incentives. The agreements are no different than patent deals in other industries, he said.

Leibowitz said the agreements add to health-care costs. If some settlements between companies aren’t prohibited, “you’re going to pay seven, eight, 10 times as much as you otherwise would,” he said. The FTC said the deals cost consumers $3.5 billion annually, a figure disputed by economists such as Jonathan Orszag, senior managing director at the economic consulting firm Compass Lexecon in Washington and the brother of White House Budget Director Peter Orszag.

Courts have allowed the settlements as long as they don’t prevent entry of the generic beyond a patent’s lifespan.

In the Cipro case, the agreement allowed a generic drug to be sold six months before the patent expired

‘Tremendous Value’

The FTC doesn’t see the tremendous value the patent settlements have brought to the system

Since February, courts have thrown out antitrust lawsuits over Bristol-Myers Squibb Co.’s blood-thinner Plavix and AndroGel, a testosterone ointment now made by Abbott Laboratories. The FTC lost a case over a settlement involving Schering-Plough Corp.’s K-Dur heart medication.

A three-judge panel in April upheld the Cipro settlement, though it recommended opponents seek a review by the full court.

The potential court review, along with legislation Leibowitz predicted Congress would pass this year, add momentum to efforts to limit deals. Senators Herb Kohl, a Wisconsin Democrat, and Charles Grassley, an Iowa Republican, introduced an anti-deal measure. House legislation would bar the settlements.

‘Winds Are Shifting’

“The winds are shifting on the legal front, shifting on the commission front and on the legislative front,” said Robert Doyle, a former FTC official.

Ken Johnson, a senior vice president at the Pharmaceutical Research and Manufacturers of America, a Washington trade group, said brand-name drug companies need patent protection to justify the investments required to develop medicines. Drugmakers said the settlements also provide certainty as to when generics will enter the market.

Stark said a court review may not be significant.

“I don’t think it’s a foregone conclusion just because they take it up that they reverse the trend,” he said.

Marcy Funk, a spokeswoman for Leverkusen, Germany-based Bayer, declined to comment.

All parties are watching if the 2nd Circuit agrees to hear the Cipro case. The decision may come in August, said David Balto, a lawyer representing consumer groups.

Indian Drugmaker Cipla Targets $19 Billion-a-Year Roche, Amgen Drugs

Amgen is looking good right now on the heels of the recent drug approval but GENERICS are coming after the whole portolio.

BIOLOGICS hold the key but that’s not for 3 – 5 years!  LONG TERM BUY…HMMMM

Cipla Ltd., the Indian drugmaker that built a $1 billion business making generic HIV treatments, aims to sell copies of Roche Holding AG’s and Amgen Inc.’s best- selling biotechnology medicines with a partner in China.

Cipla plans to invest in companies in India and Hong Kong that make so-called monoclonal antibodies. The technology will enable Mumbai-based Cipla to gain access to products modeled on Roche’s Avastin and Herceptin cancer drugs and Amgen’s rheumatoid arthritis treatment Enbrel, Hamied said.

The three medications generated $19 billion in sales last year. Cipla, India’s third-largest drugmaker by revenue, intends to sell its versions cheaper, making them more affordable. The same strategy of copying medicines developed by others helped the 75-year-old company become one of the largest suppliers of AIDS pills for developing nations.

“Avastin, Enbrel, Herceptin — these are all being marketed today, but the prices are very high,” and Cipla says they have biosimilars for them.”

Cipla jumped as much as 2.1 percent to 344.95 rupees in early trading and ended 1.4 percent lower from yesterday at 333.40 rupees. The benchmark Sensex index rose 0.3 percent.

Hamster Ovaries

Biotechnology drugs are made from proteins synthesized in living cells such as yeast and Chinese hamster ovaries. They are more complex, difficult to make and pricier than traditional pharmaceuticals, which consist of comparatively simple chemical compounds. Other Indian companies are expanding into this area.

Biocon Ltd., India’s biggest biotechnology company, signed an agreement a year ago with Mylan Inc. to develop, make and market generic biologic drugs. Dr. Reddy’s Laboratories Ltd., India’s second-biggest drugmaker, said in 2007 it began selling a version of the cancer medicine rituximab at about half the price of Roche’s original, called Rituxan.

Under an agreement with Shanghai-based partner Desano Pharma, Cipla will have rights to market the biosimilars in India and overseas, Hamied said. Cipla will invest $65 million over three years buying 40 percent of a company based in the west Indian city of Goa and a 25 percent stake in a Hong Kong- based biotechnology company, Cipla said in a statement yesterday.

Cipla is targeting 8 to 10 treatments for rheumatoid arthritis, colorectal cancer, allergic asthma, and head and neck cancer that aren’t covered by patents in India and China, according to a statement on the company’s website. The brand- name drugs generate about $30 billion a year in sales

Patent Protection

Biotechnology drugs account for about 10 percent to 15 percent of the global pharmaceutical market and many of them are off-patent or will lose patent protection soon, Cipla said.

“This investment will, therefore, enable Cipla to expand its business in this high technology and high growth segment,” the company said.

Hamied said he may consider other sales and marketing ventures. “I am not hunting for partners, but if something comes up, we have an open mind with regard to partnerships,” he said.