Kos Pharm.doc - Testing

oculoplaniaballtownΒιοτεχνολογία

1 Δεκ 2012 (πριν από 4 χρόνια και 6 μήνες)

243 εμφανίσεις


Kos Pharmaceuticals Inc.


STOCK REPORT:

Biotechnology and Drugs








ANALYSTS
:


Christopher Zimmer

Dan Driscoll








% of Portfolio:

5%

P/E (TTM):

17.09

# of Shares:

39

P/E (Leading)

16.42

52
-
week High:

$59.41

EPS (Leading)

$3.01

52
-
week Low:

$28
.00

P/B (MRQ):

4.37

Current Price:

$42.21

P/S (TTM):

4.5

Stop Loss:

$37.25

Beta:

0.67

Target Sell Price:

$66.44



BUSINESS SUMMARY:


Kos Pharmaceutical
s

Inc. specializes in developing, manufacturing, and
commercializing patented prescription
-
based d
rugs.

The Company has been focused on
the development of proprietary treatments for chronic cardiovascular and respiratory
diseases. An important part of the Company’s business strategy is on the re
-
formulation
of existing FDA
-
approved pharmaceutical dru
gs. Kos has been committed to finding
ways to improve upon existing pharmaceutical products in terms of safety advantages
(reduction of side
-
effects) and patient compliance. With this strategy the Company can
avoid certain regulatory risks that go along
with the development of a new chemical
application. Kos has developed and currently manufactures two lead cholesterol
treatment products,
Niaspan

and
Advicor
, which are both marketed through an internal
specialty sales force and a contracted marketing tea
m. The Company also acquired the
global rights to
Azmacort
, an inhaled drug for the treatment of asthma, in its product
acquisition agreement with Aventis Pharmaceuticals Holdings Inc.


Products:


Niaspan
:



This is Kos’ le
ad patented drug; and the onl
y n
iacin product ever approved by the FDA
for the treatment of multiple lipid disorders. It is a once
-
a
-
day prescription clinically
proven to: reduce elevated total cholesterol and LDL (“bad” cholesterol), while
increasing low HDL (“good” cholesterol) lev
els. The drug has also been proven to
reduce recurrent non
-
fatal heart attacks, and decrease
lipoproteins, which are linked to coronary heart disease.
The Company currently markets
Niaspan

directly to
physicians who specialize in lipid management, and
ag
gressively treat patients with coronary heart disease
and cholesterol problems. Since expanding its sales
force in 2003, Kos has increased promotions of
Niaspan

through direct office visits, medical seminars, and clinical discussion groups. The
Company’s

promotional efforts have also included investments in medical education
grants and expert advisory boards, in order to establish the importance of cholesterol risk
management and increase awareness of the effectiveness of
Niaspan

in treating these
problem
s. The drug is manufactured and sold throughout the United States, and
marketed in the United Kingdom through its distribution partner Merck KGaA.


Advicor
:



This drug was the first combination
product to be approved by the FDA
for the trea
tment of cholesterol
disorders. It is a single tablet
formulation that combines Kos’
Niaspan

and lovastatin (another chemical used in lipid
treatment). In a Phase IV clinical study published in the American Journal of Cardiology,
Advicor

was tested on se
veral param
eters against Lipitor (Pfizer’s

leading statin drug).
Patients receiving
Advicor

showed reductions in LDL, triglycerides, and lipoprotein of
39%, 30%, and 16% respectively; compared to
Lipitor

patients who showed reductions of
38%, 15%, and 15%
. While
Advicor

results exceeded Lipitor’s in these lipid parameters,
it was shown to be far superior in raising HDL levels in patients (20% increase versus
Lipitor’s 3%). Currently Kos markets
Advicor

directly to primary care physicians and
specialists,

and utilizes other promotional measures similar to that of
Niaspan
.


Azmacort:



On March 8
th
, 2004 Kos entered into agreement with Aventis Pharmaceutical Holdings
Inc. for the global rights to the
Azmacort

Inhalation Aerosol franchise
. Under the
deal,
Aventis will supply Kos with the inhaled drug for a period of five years
. This product
acquisition allows Kos to gain entry into the respiratory
market, which is the fastest growing pharmaceutical
area with over $10 billion in sales a year. With th
is
deal also comes the
right

to an environmentally safe
version of
Azmacort
, which is currently under
development and would require FDA approval.
Azmacort

is a patient friendly corticosteroid used to treat mild to moderate asthma. It is
the only asthma d
rug which uses a built in spacer device to improve the delivery of the
medicine to the lungs. The acquisition of
Azmacort

along with its inhalation delivery
system adds to Kos’ existing proprietary meter
-
dosed inhalation technologies.



Drug

Release Date

Percentage of Sales

Growth in Sales

Niaspan

July 1997

62.5

46%

Advicor

December 2001

21.2

63%

Azmacort

August 2004

16.3

Re
-
launched


* Percentage of Sales and Growth figures are both based off of Kos’ Third Quarter 2004 results


Pipeline:



Kos contin
ues to devote much of its resources towards research and product
development. Currently the Company is in the process of designing three new solid dose
drugs. The first new drug application is a dual component therapy for dyslipidemia

(cholesterol)
, whic
h is expected to be more effective than Advi
cor in lowering LDL
cholesterol.


In late August of this year
,

the Company announced that this drug is a
combination of Niaspan and simvastatin (the second most prescribed statin). Kos
has
said this drug can be
used to treat patients with multiple lipid disorders. It
plans on
submitting

a New Drug Application (NDA) to the FDA in 2006, and pending approval
hopes the drug will reach the market by 2007.
The second
drug

is a dual regul
ator of
glucose and lipids. T
his

product is expected to be more potent than Niaspan in managing
cholesterol, while also reducing blood sugar levels. It is currently in the formulation
development process, and testing in human clinical trials should begin in 2005. The third
drug, exp
ected to reach the market in 2009, is designed to treat peripheral arterial disease.


Kos, in partnering with Purdue University Research Foundation, is also
developing gastric retention drug delivery systems that can be used with multiple
pharmaceutical p
roducts. In addition, Kos has started a program to develop new “smart”
chemicals, which
can
target certain enzymes that promote the regression of cholesterol
plaque.



To date, Kos has developed a proprietary, state
-
of
-
the
-
art line of inhalation
device
s which: provide patients with uniform doses of medicine and improved
ergonomics for better coordination. The Company is also developing a compact portable
nebulizer for products that require larger doses and a device that warns patients their
inhaler nee
ds to be refilled. In 2002 Kos obtained nine different patents for their
inhalation devices and added seven more in 2003. Kos’ advanced inhalation research
efforts have also been focused on a new inhaled insulin formulation. This formula has
demonstrate
d strong positive results in Phase IIa trials for type two
diabetes

patients. In
a
recent

study patients who were given Kos’ inhaled insulin formula showed reduction in
glucose, LDL cholesterol, and triglycerides of 28%, 10%, and 36% respectively. This
w
as compared to Lantus; the most commonly prescribed injectable insulin on the market.
Patients given Lantus showed a 26% reduction in glucose, a 1% increase in LDL
cholesterol levels, and a 12% reduction in triglycerides. This hand
-
held “Breath Actuated
Inhaler” was developed internally by Kos. This revolutionary product does not require
refrigeration, is environmentally safe, and has been well received by patients

and
physicians
.





Recent News:


November 16
th
, 2004


UNITED STATES PATENT OFFICE GRANTS KOS PHARMACEUTICALS, INC. NEW PATENT
COVERING NIASPAN® SIXTH PATENT FOR CHOLESTEROL BASED FRANCHISE



“The '229 patent, Kos' sixth patent for its Niaspan(R) ba
sed cholesterol franchise, covers certain
biopharmaceutical characteristics. Specifically, the patent covers ranges for Cmax (maximum blood
concentration), Tmax (time to reach maximum concentration in blood) and AUC (area under the curve) that
confer clini
cally proven safety and tolerability profiles for an extended release niacin formulation. These
characteristics are properties of Niaspan and Advicor(R), Kos' other marketed cholesterol drug.”


-
Business Wire
-



November 3
rd
, 2004


KOS REPORTS IMPRESSIVE I
NCREASES IN REVENUE, EARNINGS AND CASH AND
RAISES FULL
-
YEAR GUIDANCE



“For the third quarter of 2004, revenue increased 79% to a record $131.9 million, up from $73.5 million for
the third quarter of 2003. The significant increase principally reflected rob
ust revenue growth of Kos'
highly differentiated cholesterol products, Niaspan(R) and Advicor(R), which raise HDL
-
C ("good"
cholesterol), while also lowering LDL
-
C ("bad" cholesterol), and stronger than expected revenue from its
recently purchased asthma p
roduct, Azmacort(R). Revenue for the nine months ended September 30, 2004,
increased 68% to $346.4 million, from $206.6 million in the comparable period in 2003. As a result of the
Company's strong financial performance, Kos expects to increase revenue in

excess of 65% from 2003 to at
least $490 million and to increase its earnings per share expectation for full year 2004 to approximately
$3.00 per fully diluted share.”



-
Business Wire
-


October 14
th
, 2004


KOS RECEIVES FINAL APPROVAL TO MARKET NIASPAN IN FRANCE, SECOND
LARGEST MARKET IN E
UROPE


“Kos Pharmaceuticals, Inc. announced today that the Company, through its European and international
marketing partner, Merck KGaA, has received marketing authorization for Niaspan(R) (niacin extended
-
release tablets) in France, the second largest ph
armaceutical market in Europe. The cholesterol market in
France was valued in excess of $1.1 billion in 2003. German
-
based Merck KGaA plans to launch Niaspan
in France in the second half of 2005, following the establishment of pricing and reimbursement for

the
product. The French marketing authorization marks the 12th approval of this dyslipidemic agent in Europe
and marks another key milestone for the Kos and Merck KGaA partnership. As a result of the receipt of
marketing authorization in France, Kos will
receive a $2.5 million milestone payment from Merck KGaA,
as well as royalties on net sales in the territory.”

-
Business Wire
-




INDUSTRY ANALYSIS:


The biotechnology industry is
fairly volatile and stock price movements are
mostly
event driven.

Price
run ups or sell offs

are very closely tied to announcements of
potential future cash flows.

Positive a
nnouncements
based on drug approval
s

by the
FDA
,

or success in late phase testing of new products
,

often times produces double digit
percent
age

gains in
biotech stocks
.

Recently, this

industry took a bit of hit when
pharmaceutical

giant Merck
voluntary pulled
one of its
lead

drugs
,

Vioxx
,

from the
market
.

The recall was due to a linkage between long
-
term usage of the drug and severe
cardiovascular
compli
cations
.

Merck, along with the entire
i
ndustry
,

were further scarred

when rumors surfaced that the C
ompany and i
ts officials had known about this dangerous

side effect

when it did an independent study in early 2000
.

The C
ompany is now facing
serious laws
uits from
thousands of patients

who
have
used the drug.

Merck’s

stock price
in turn has
dropped about 30% since the mid
-
October announcement.

Some companies
within the industry
,

like Amgen, have actually benefited somewhat from the
negative
news

Another
recent event that has affected the industry is the re
-
election of President
George W. Bush.


Most industry analysts
believe that Bush is a friend of

the biotech
industry
,

keeping his promise of helping business’

with tax cuts.

Recently,
the
FDA

has
also
e
lected a new c
ommissioner, who has stated

that a faster approval process for
potenti
al drugs would help this
sagging industry
recover;

which took a turn for the worse
after the technology bubble burst in March of 2001.

The number of approvals for drugs
wi
thin the biotech industry increased 25% in 2003
,

as compared with the previous year.

Al
ready in the first half of 2004, the FDA has approved
eight
different
drugs
which have
been in the clinical trial stage for an extended period of time
.

Globally, in 20
03 most b
iotech firms

experienced their second
-
best financing year
in history, with the U
.
S
.

biotech sector registering the largest increase (31%) in total
venture funding
.

This strong momentum has seen results as
biotech financing has grown
by
more than

250% to $9.7 billion
in just the last
year
.

The future of this i
ndustry
seems
to rely on companies’
ability to
successfully get products to the market quickly, while
ensuring their safety and keeping

research and development costs in check
. The average
R

& D cost
s

in 2004 to fund the

development and approval of a
new drug is about $800
million. With more products on the markets
, competition has increased, but the potential
for profitability with new proprietary drugs is
limitless
.


Risks
:



There are cert
ain inherent risks that investors must understand when owning any
pharmaceutical or biotech stock. This industry is complex in that each firm tries to
protect its products and proprietary information by obtaining U.S. and foreign patents,
trademarks, copy
rights, and contractual agreements. It

s often the case that new
product
formulations build off of already existing chemical compounds, which means
that patent
protection only goes so far in limiting competition.
When any pharmaceutical company
develops
a proprietary drug, it must
also
complete an extensive line of testing and be
approved at several different stages by the U.S. Food and Drug

Administration. There is
no guarantee that a Company’s drug will be approved
by the
FDA; so each firm runs the
ris
k of devoting millions of dollars to develop a product that may never reach the market.


Currently, Kos owns 58 different patents in the U.S., has filed for 36 additional
ones, and has been licensed four more. These patents cover many different formulas u
sed
to develop Kos’ marketed drugs, and also cover technologies pertaining to the
Company’s aerosol inhalation devices and formulations. Like many other firms within
the industry, generic drug makers have attempted to violate Kos


patents by issuing
Abbre
viated New Drug Applications (ANDA’
s) based the Company’s products. Most
notably is Barr Laboratories, who in January of 2002 filed an ANDA which would allow
Barr to market a generic version of Kos’ 1000 mg Niaspan drug. In response, the
Company quickly
filed a patent infringement lawsuit, which Barr of course appealed. In
October of this year the court
s announced they have

consolidated all lawsuits in this
matte
r, and litigation will begin in early 2005, commencing in February of 2006. Should
Barr win
these lawsuits and obtain the rights to generically market Niaspan, this could
pose a significant threat to the Company’s revenues.


It is also important to note that Kos manufacturers Niaspan and Advicor in a
single plant in Edison, New Jersey. Due to
increased demand for the drugs, the Company
may have to invest in an additional facility or modify the existing plant in order to
increase capacity. Kos also purchases the active ingredient in its drugs from one major
supplier, and has no contract
ual agre
ements with any other supplier.





Competition
:



Within this industry, drug makers are constantly competing with one another in a
race to develop new revolutionary products. Kos’ Niaspan and Advicor only account for
a total of 3.2% of prescriptions
written in the U.S. for cholesterol lowering drugs.
Although market share continues to increase, as does the number of people in need of
these this kind of treatment, there are many different pharmaceutical players in this field.
Other cholesterol drug m
akers include: Bristol
-
Myers Squibb (Pravachol), Merck
(Zocor), Pfizer (Lipitor), AstraZeneca (Crestor). The majority of these competitive drugs
are based off of the compound statin, which is
one of
the active ingredient
s

in Advicor.
What separates Kos f
rom the competition is the fact that

there are no other currently
available niacin formulations approved by the FDA for
cholesterol treatment. Niaspan
and Advicor’s
once
-
a
-
day dosing

regiment, based on its extended release formula, is also
a competitive a
dvantage over other prescriptions
. This clear product differentiation,
along with
the success of the drugs with regards to safety and effectiveness,

should allow

Kos to continue show
significant

positive sales growth in the future.






VALU
ATION
:



Historical Financial Highlights:


Table

1
:
Diluted
Earnings p
er Share Growth



2002

2003

2004

Q1

-
0.79

0.35

0.34

Q2

-
0.50

0.31

0.70

Q3

-
0.02

0.37

0.94

Q4

0.18

0.49

1.03 *

Yr

$
-
1.13

$
1.53

$
3.01*


*Estimates based on Company’s Fourth Quarter 2
004 Guidance





Table

2
: Sustainable Revenue Growth

(in thousands)


1998

1999

2000

2001

2002

2003

2004

$
13,038

$
36,340

$
60,174

$
91,447

$
172,693

$
293,907

$
490,000
*


*A 2004
year end
estimate based on Kos’ Management Guidance and three quarters of histori
cal data


Free Cash Flow to Equity:



In order to value Kos
we first focused on a

free cash flow to equity model.
Assumptions in the area of prior year sales and sales growth were taken as r
eported by
the company. Kos

has projected 2004

revenues
to be

ab
out $490 million

and Earnings
per Share for the year to be $3.01
.

They also believe th
at
sales
will continue to grow at
mean rate of 20%

over the next five years
.

In order to estimate cost of equity we

use
d

the
CAPM model
, with a risk free rate of 5% and

a market risk premium of 9%
.

Depreciation and cost of goods sold were
measured using consistent

historical average
s
from 2001 through 2003
.

Although we used a high capital expenditure growth rate of
60% over the next two years

and a terminal rate of 20%
, we believe this will be justified
by the fact the Company is going to have to continue to inc
rease capacity by building
more facilities to meet demand.

Kos

has turned profitable at a fairly quick rate,
and
this
huge increase in cash should provide the C
ompany with plenty of resources
to reinvest in
capital assets and
increase
research and development

efforts
.


Historically, Kos has only seen decreases in net working capital, but over the past
year (excluding cash) this trend in NWC has reversed and we b
elieve this will continue at
a steady rate of 10%.
Our forecasted FCFE recorded a
n average

growth rate of 14%

from
2005 through 2009
, which we trimmed back to 10% to compute a terminal value.
We
believe all
of
the

assumpt
ions
used to forecast
a target pr
ice on Kos Pharmaceuticals of
$66 are

modest
,

in order
to ensure a policy of conservatism.


Ratio Analysis:



When examining both

historical firm ratios and current ratios versus the
biotech/pharmaceutical industry, several important trends and positive pa
tterns are
noticed. Most notably seems to be Kos’ strong consistent sales growth that has averaged
just above 40% over the last four years, compared to a five year industry average of about
28%.
Over the last 12 months
Kos’

has seen

revenues increased
by

over 7
0%
, versus an
industry average of about 16%
.
A better benchmark might be Sepracor, a biotech with a
similar market cap, who saw revenues increase by around 40% in the last 12 months
(This stock has yet to earn money, but trades at a price of about
$48.00). Kos’

sales
growth
rates are what
has
fueled the
Company’s
strong earnings
numbers
,
and it’s
expected that Kos will

post a 2004 EPS number of about $3.00 a share.



Another important measure of profitability is gross margin, which Kos

has
managed

to lead the industry in over the last five years. From 2001 to 2004 the Company
held a gross margin rate between 91% and 94%; compare that 92% average to the
industry’s 68%. Over the last two years as the Company has begun to earn money,
operating margi
ns turned positive. Just in the last year, Kos recorded operating margins
of 19% versus the industry average of 12%.
This is a ratio which the Company hopes it
can continue to maintain, and is something that should be paid close attention in the years
to

come.


Though it has taken many years and nearly all of the Company’s resources,
management has now been able to capture nice returns for its shareholders. Over the last
year, Kos has earned a 31% return on its assets versus a negative industry average
.
Combine that with a return on equity number of 47% and a return on investment of 44%,
versus the industry averages of 5% and 1% respectively. One of the biggest problems
young biotech companies have is getting their products to the market and generatin
g
return
s from them
. Kos has managed to do just that, and asserts it will continue to see its
research and development costs pay off in the future.


Lastly, when comparing the valuation ratios of Kos it’s important to point out
several key statistics. F
irst off all Kos has a 12 month trailing P/E of about 17 versus the
industry average of about 39
, and is expected to have a P/E of about 14 after next
quarter

s results are released
. This of course would signal the stock is undervalued by a
large margin;
but we must mention that we expect (according to the Company) that Kos’
forward
2005
EPS

number

to be
slightly
lower

than the Company’s 2004
EPS
estimates,
despite the fact Kos is expected to continue to grow sales at roughly 20% a year. The
reason for th
is is the Company has been able to use a deferred tax asset (due to a net
operating loss carry
-
forward)

to offs
et any significant income taxes. T
herefore when this
asset is used up early next year, EPS is expected to fall to somewhere around $2.57. This
i
s the consensus on the Street and has already been priced into the stock. Assuming these
estimates are accurate
,

Kos would
still

h
a
ve

a 2005
forward P/E of about

16.42. Some
other ratios worth mentioning include

price to sales of 4.5 and price to book of

4.37, both
of these statistics are below the industry averages of 10 and 5 respectively; certainly

a
sign that the market
hasn’t overvalued
Kos’ stock due to
its recent success.






TECHNICAL ANALYSIS:



Currently Kos’ stock price seem
s to remain r
ange bound between a short term
support level of $41.40 and resistance near $45.75. This basing pattern formed after the
stock broke out of its previous base between $33.75 and $37.75, spurred by the
Company’s strong third quarter financial performance.
Kos’ sto
ck now trades above both
its 50
-
day moving average of
$39.50 and its 200
-
day moving average of $37.30.

Over
the last few months average trading volume has increased noticeably as the stock has
risen. This could also be a sign that there has been
more institutional buying as of late.





Chart
s

1: Six Month



Chart 2: Twelve Month








Final Recommendation:



Considering that SIMM
currently
does not have any exposure in either the biotech
industry or the healthcare sector
,

we believe
the fund

should invest 5% of its portfolio
value in Kos P
harmaceuticals.

With a beta of .67
, Kos appears to have a have a lower
level of risk versus the industry average
.

Kos is quickly
emerging
as a strong growth
candidate
wit
hin the biotech industry, and has sh
own

several solid positive trends in the
areas of profitability and effectiveness of management
.

The Company has been widely
successful with its three lead drugs, and possesses a rich pipeline which should fuel
future growth. Although this stock is certa
inly subject to risk in the approval of its
products and competition within the market for cardiovascular/respiratory drugs, we still
believe Kos has the potential for continued growth and price appreciation. This mid
-
cap
stock would help the fund avoid a
n overweight in large
-
caps, despite the fact its earnings
and product success rivals the large
-
cap pharmaceutical giants within the industry. We
suggest the fund purchase thirty nine shares of Kos Pharmaceuticals, around its most
rece
nt closing price of a
bout $42.20
.


SOURCES:


Yahoo Finance

http://finance.yahoo.com/q?s=kosp


Merchant Online Database: Kos Pharmaceuticals

http://www.mergentonline.com/compdetail.asp?company_mer=90862&company=
-
1


Kos Pharmaceuticals Website

www.kospharm.com


Kos Pharmaceu
ticals Inc.
: 2003

10
-
K, Annual Report

http://www.sec.gov/cgi
-
bin/browse
-
edgar?action=getcompany&CIK=0001018952&owner=include


BigCharts
.com


http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=kosp&sid=0&o_sym
b=kosp&freq=1&time=8



United State
s Patent Office Grants Kos Pharmaceuticals, Inc. New Patent Covering
Niaspan; Sixth Patent for Cholesterol Based Franchise
.” Nov 16 2004.

http://bigcharts.marketwatch.com/news/articles.asp?guid={FDF66E4A
-
6881
-
4633
-
8A38
-
89BCD5E5E468}&newsid=826936602&symb=K
OSP&sid=40221




Kos Reports Impressive Increases in Revenue, Earnings and Cash; and Raises Full
-
Year
Guidance
.” Nov 3 2004.

http://bigcharts.marketwatch.com/news/articles.asp?guid={5BBBFD02
-
17E5
-
470A
-
BC85
-
EBF968FCBA16}&newsid=825589141&symb=KOSP&sid=40221



Kos Receives Final Approval to Market Niaspan in France, Second Largest Market in
Europe
.” Oct 14 2004.

http://bigcharts.marketwatch.com/news/articles.asp?guid={62755E43
-
5697
-
491C
-
ABF6
-
E639D1B02337}&newsid=823545046&symb=KOSP&sid=40221


Reuters: KOSP

ht
tp://www.investor.reuters.com/StockOverview0.aspx?country=US&ticker=KOSP.O&c
oname=KOS+PHARMACEUTICALS+INC&mxid=100061967&target=%2fstocks%2fqu
ickinfo%2fstockoverview&cotype=1&page=default


Ameritrade Advanced Analyzer

www.ameritrade.com


Stockcharts.com

ht
tp://stockcharts.com/def/servlet/SC.web?c=kosp