Buy and Bill for Pharma and Biotech in 2012

Buy and Bill is changing the business model for all large and mid cap companies.

The sales rep is only beneficial to the doctor if it can assist him/her in buying the products a the lowest wholesale price and billing quickly enough to recoup the

reimbursement from the insurance company. Investors should look at liquidity ratios on balance sheets. If 30% of A/R are > 90 days and days payable outstanding is increasing it’s a warning flag.

Therefor if the sales rep’s company doesn’t have significant “buyer power” (i.e. Teva, Pfizer, Norvartis, Merck) it’s harder to get a low wholesale price.

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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.

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

Sorrell vs. IMF Health goes deep inside business of pharma data mining techniques

There is a landmark case that speaks to the hot button issue of PRIVACY.

The case challenges a Vermont Law that letting doctors decide whether their names can be sold 

to pharma companies for marketing purposes.

Here’s how it works currently (Step 1)  Pharmacists sell the information to data mining companies , which then sell

data and analysis (i.e. which customers would be great prospective prospects for “detailing”) to pharma companies WITH

PATIENT NAMES removed or encrypted.  That data fuels drug companies CRM efforts using companies such as ZS Associates

to do statistical regression studies that present data on prospects, territories profiles etc.

The outcome is purely based on Free Speech and is likely to be won by the 3 data companies (IMF Health, SDI Health and Source Analytics).

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