tag:blogger.com,1999:blog-44902293261657646852024-03-08T05:06:00.193-08:00Bio VantageHigh quality stock analysis on biotech and pharmaceutical companieshsiouchihttp://www.blogger.com/profile/14238013052921628378noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-4490229326165764685.post-20959368289816636672012-08-12T17:44:00.000-07:002012-08-12T17:44:31.516-07:00What is the true P/E multiple for Berkshire Hathaway?<br />
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Berkshire Hathaway (BRK) is a
longterm holding of two good friends: one a smart and successful investor, the
other an analyst. They recently read an
interview in Barron’s where the fund manager (<span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">De Lardemelle)</span> stated that BRK’s earnings did not
fully reflect the earnings of its equity investment in other companies,
including <span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">Coca-Cola (KO) </span>(Barron’s
magazine, August 11, 2012, Ways to play American exceptionalism) (<a href="http://online.barrons.com/article/SB50001424053111903940904577567202050041804.html?mod=BOL_hps_mag#articleTabs_article%3D0">Ways
to play American exceptionalism </a>). <o:p></o:p></div>
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<br /></div>
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<b>Below is the excerpt
from Barron’s: <o:p></o:p></b></div>
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<span style="color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;"><br />
<b><span style="background: white;">Questioner</span></b><span style="background: white;">: By our calculations, the stock is trading at around
15</span> <span style="background: white;">times next year's profit estimate of
$8,265 a share.</span><br />
<br />
<b><span style="background: white;">De
Lardemelle</span></b><span style="background: white;">: What that is not catching
is the earnings on their</span> <span style="background: white;">equity
portfolio, including Coca-Cola (KO). If you consider those</span> <span style="background: white;">earnings, the stock trades at closer to 11-12 times.
What I also like</span> <span style="background: white;">about Berkshire Hathaway
is that if there is a downturn in the equity</span> <span style="background: white;">markets, it usually allows it to grow its intrinsic value faster as</span>
<span style="background: white;">they put more money to work. It is very unusual
to have a business</span> <span style="background: white;">that grows in value as
the economy or the stock market falls sharply.</span><br />
<br />
</span><b><o:p></o:p></b></div>
<div class="MsoNormal">
<b>Below is the dialog
between the investor and the analyst on BRK’s PE multiple issues: <o:p></o:p></b></div>
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<b><br /></b></div>
<div class="MsoNormal">
<b><span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">Investor</span></b><span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">: I think the 11-12 is a little aggressive. Also,
since</span><span style="color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;"> <span style="background: white;">dividends
received by Berkshire are counted in earnings, there is some</span> <span style="background: white;">double counting going on. Therefore, my best
guess is that the true</span> <span style="background: white;">multiple on next
year's earnings is 13.</span><br />
<br />
<span style="background: white;">There you have it. 13.</span><br />
<br />
<span style="background: white;">It is possible that I am the only one on the
planet who knows the P/E</span> <span style="background: white;">multiple.
But can we be sure?<o:p></o:p></span></span></div>
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<br /></div>
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<br /></div>
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<b>Analyst:</b> Your intuition about dividend double-counting
is right. It needs to be subtracted when using Equity method accounting (see
below). De Lardemelle is also right in his claims. Here is
where the issue needs to be clarified. It has to do with accounting
method used in reporting the investment. (I happened to learn this in CFA
level II). Let's use <span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">Coca-Cola
(KO)</span> as an example. <o:p></o:p></div>
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<br /></div>
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BRK is currently reporting its equity investment as "
Investment in financial assets". Using this method, it will report
dividend received from KO and realized gain/loss in its Income Statement.
In Balance sheet, it will report KO's current stock value.
(Unrealized gain/loss is also reported, in either Income Statement or Other
Comprehensive Incomes depending on whether it is a held-for-trading or
available-for-sale securities.).<o:p></o:p></div>
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<br /></div>
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Now, if BRK would use Equity method to report KO holding,
then it will report % ownership of KO Earnings in its Income Statement, whereas
in its Balance sheet, it will report initial investment cost+%ownership of KO
Retained Earnings (after dividend payout). <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
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The guideline is that for investment <20% ownership, you
treat it as " Investment in financial assets" For
20-50%, you use the Equity method. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
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Now, can you re-calculate P/E for BRK, using the Equity
method? <o:p></o:p></div>
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<span style="color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;"><br />
<b><span style="background: white;">Investor</span></b><span style="background: white;">: Your approach is too long.</span><br />
<br />
<span style="background: white;">The multiple is 13.</span><br />
<br />
<span style="background: white;">Stay long. Low Beta. B+ management.
A++ on tax efficiency.</span><br />
<br />
<span style="background: white;"><o:p></o:p></span></span></div>
<div class="MsoNormal">
<b><span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Analyst</span></b><span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">: </span>An analyst is fixated on getting
accurate numbers, whereas a smart, intuitive, (but impatient) investor just
wants bulk park estimates that are good enough to guide his/her investment
decision, then MOVE ON.....<span style="line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></div>
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<br /></div>
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So, what are the earnings and P/E
multiples for BRK if it would include the percentage of earnings from its
equity investments? <o:p></o:p></div>
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<br /></div>
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We compute these numbers in the
Table below, using actual data from BRK’s 2011 10K and estimated earnings from
Bloomberg (Reference: <a href="http://www.berkshirehathaway.com/2011ar/201110-K.pdf">BRK 2011 10K filing</a>; <a href="http://investing.businessweek.com/research/stocks/earnings/earnings.asp?ticker=BRK/A:US">Bloomberg
BRK/A:US</a>). <o:p></o:p></div>
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<br /></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">(a)<span style="font-size: 7pt; line-height: normal;"> </span></span>2011
numbers are obtained from BRK 2011 10K.
<span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">(b)<span style="font-size: 7pt; line-height: normal;"> </span></span>According
to Bloomberg, BRK’s 2012 and <span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">2013
profit estimates per share are $7912 and $8265. From these per-share earnings estimates, we
derive estimated total earnings of $19,363 and $20,194 for 2012 and 2013,
respectively. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;"><br /></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">(c)<span style="font-size: 7pt; line-height: normal;"> </span></span>The
equity investment interest and dividend in 2011 was $1618 (see Revenue, Finance
and Financial products, p.66). This includes interest and dividend payments
from its investment in banks, insurance companies, consumer products,
commercial, industrial companies (p.78).
This number does not include the preferred dividends from its
investments in Goldman Sachs, GE, Wigley, Dow, and Bank of America. These preferred dividends are shown as Other
Investment (p.79, p66). <span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;"><o:p></o:p></span></div>
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<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">(d)<span style="font-size: 7pt; line-height: normal;"> </span></span>We
assume that the interest and dividend income will grow 5% annually, thus
obtaining the $1700 and &1784 estimates for 2012 and 2013. <span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<br /></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">(e)<span style="font-size: 7pt; line-height: normal;"> </span></span><span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">If BRK would use Equity method to account for
its ownership in those equity portfolio companies, then it will report %
earning instead of dividend. Assuming
these companies have 40% dividend payout ratio, its earnings from equity
investment attributable to BRK will be $4460. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;"><br /></span></div>
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<span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">To summarize, BRK’s 2013 P/E is 15.39x based on current
accounting method. However, if BRK would
use Equity method to account for its equity portfolio investment, then the P/E
would be 12.45x. Given some margin of
safety, the Investor’s number is closer to the estimate.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background-color: white; color: #222222; line-height: 150%; text-indent: 0.5in;"><br /></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background-color: white; color: #222222; line-height: 150%; text-indent: 0.5in;">Disclosure:</span><span style="background-color: white; color: #222222; line-height: 150%; text-indent: 0.5in;"> </span><span style="background-color: white; color: #222222; line-height: 150%; text-indent: 0.5in;">We are
long BRK. </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;"></span></div>
<div class="MsoNormal">
<o:p></o:p></div>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background: white; color: #222222; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;"><br /></span></div>
<div class="MsoNormal">
<b><span style="background: white; color: #222222; font-size: 14.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Table 1: Calculation of BRK P/E multiples<o:p></o:p></span></b></div>
<div class="MsoNormal">
(dollars in millions, except per-share amounts) (E:
estimates from <a href="http://investing.businessweek.com/research/stocks/earnings/earnings.asp?ticker=BRK/A:US">Bloomberg
BRK/A:US</a>) (Reference: <a href="http://www.berkshirehathaway.com/2011ar/201110-K.pdf">BRK 2011 10K filing</a>; <a href="http://investing.businessweek.com/research/stocks/earnings/earnings.asp?ticker=BRK/A:US">Bloomberg
BRK/A:US</a>). <o:p></o:p></div>
<br /><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; margin-left: 9.9pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 578px;">
<tbody>
<tr>
<td style="border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<br /></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
2011<o:p></o:p></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
2012<o:p></o:p></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
2013<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
Financial
assets method<o:p></o:p></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
2013<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
Equity
method<o:p></o:p></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
Interest,
Dividend, other investment<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
1,618<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
1,700 (estimate)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
1,784
(estimate)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
0<o:p></o:p></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
Earnings
before tax<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
15,314<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
19,363 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
20,194 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
18,410 (E)<o:p></o:p></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
-Tax (30%)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
4,568<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
5,809 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
6,058 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
5,523 (E)<o:p></o:p></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
Net
earnings<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
10,746<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
13,554 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
14,136 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
12,887 (E)<o:p></o:p></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
-Minority
interest<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
500<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
500<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
500<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
500<o:p></o:p></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
Net
earnings to BRK<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
10,254<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
13,053 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
13,636 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
12,387 (E)
<o:p></o:p></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
Earnings
from equity method investment<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
0<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
0<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
0<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
4,460 <o:p></o:p></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
Net
earnings (total)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
10,254<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
13,053 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
13,636 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
16,847 (E)<o:p></o:p></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
Shares
outstanding<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
1,649,891<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
1,649,891<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
1,649,891<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
1,649,891<o:p></o:p></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
EPS<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
6,215<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
7,912 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
8,265 (E)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
10,211 (E)<o:p></o:p></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
Stock
price (as of 8/10/2012)<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<br /></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
$127,175<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<br /></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<br /></div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid windowtext 1.0pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="top" width="165">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
P/E
multiple<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 58.8pt;" valign="top" width="98">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
20.46 x<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
16.07 x<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
15.39 x<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.0pt;" valign="top" width="105">
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
12.45 x<o:p></o:p></div>
</td>
</tr>
</tbody></table>hsiouchihttp://www.blogger.com/profile/14238013052921628378noreply@blogger.com2tag:blogger.com,1999:blog-4490229326165764685.post-70314905892634437612012-07-31T17:04:00.000-07:002012-07-31T17:04:09.279-07:00Amarin's AM101 received FDA approval on July 26, 2012Amarin's AM101 received FDA approval on July 26 for treatment<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 115%;"> for patients with very high
triglycerides. </span><br />
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-bidi-language: EN-US; mso-fareast-font-family: PMingLiU; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast;"> </span>hsiouchihttp://www.blogger.com/profile/14238013052921628378noreply@blogger.com0tag:blogger.com,1999:blog-4490229326165764685.post-85790706949299971992012-07-31T17:00:00.002-07:002012-07-31T17:00:44.194-07:00Qnexa received FDA approval on July 17, 2012Vivus' drug Qnexa (renamed Qsymia) received FDA approval on July 17 for the treatment of obesity.hsiouchihttp://www.blogger.com/profile/14238013052921628378noreply@blogger.com0tag:blogger.com,1999:blog-4490229326165764685.post-81823127616936210042012-07-09T06:44:00.000-07:002012-07-09T06:48:34.369-07:00VIVUS (VVUS) valuation report ahead of the FDA action<br />
<div class="MsoNormal" style="line-height: 150%;">
<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"> Authors: Hsiou-Chi Liou, Jason Hsu<o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">VIVUS Inc.
(VVUS) and Arena Pharmaceutical (ARNA) are front runners in the development of
weight-loss drugs. The rollercoaster
rides for both stocks over the past two years demonstrate the volatility of
small cap biotech stocks without commercial products. The FDA finally approved ARNA’s Belviq
(lorcaserin) on June 27, 2012. This
makes Belviq the first weight-loss drug approved by the FDA in 13 years and reignites
the enthusiasm for such drugs. With the
upcoming FDA decision on VVUS’s Qnexa on July 17, 2012, there are a number of
issues investors should consider: Will Qnexa
receive FDA approval? What’s the fair value for VVUS? What strategies can investors
use to gain on the upside and protect against the downside? <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Here we
analyze Qnexa clinical trial data, the probability that Qnexa will receive FDA
approval for treating obesity, market opportunities, and risk factors for Vivus.
Our discounted cash flow model suggests
a weighted target price for VVUS at $33-$34. <o:p></o:p></span></div>
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<b><span style="color: #0070c0; font-family: 'Times New Roman', serif; font-size: 14pt; line-height: 150%;">Clinical Trial Data<o:p></o:p></span></b></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">First,
let’s look at the phase 3 clinical trial data and benchmark Qnexa against the
already-approved Belviq.<o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Arena
conducted three phase 3 trials for Belviq (locaserin). The studies showed that,
in both 1-year and 2-year studies, about 65% and 35% study subjects treated
with Belviq achieved weight loss of >5% and >10%, respectively. The percentage is lower for people with type
2 diabetes. By comparison, the three
phase 3 trials conducted by Vivus showed that in 1-year studies, 84% of
patients taking Qnexa achieved weight loss >5%. In 2-year studies, 79% of study subjects
receiving Qnexa had weight loss >5%, whereas about 54% and 30% of patients
achieved weight loss of >10% and >15%, respectively. Moreover, obese people taking high dose Qnexa
showed average weight loss of 11-15%.
Therefore, from an efficacy point of view, Qnexa appears to have greater
and more sustainable weight loss benefits than Belviq. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">The
reason that the FDA held back approval for these two drugs in 2010 was primarily
over safety concerns. Both drugs have
their own issues. Belviq’s most common adverse
effects include headache, nausea, hypoglycemia, and upper respiratory tract
infection. Qnexa’s common adverse
effects include skin sensation, </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">nausea,
dry mouth, constipation, dizziness, and insomnia. While these adverse effects are not serious, the
FDA had concerns about other serious adverse effects, even though they were rare
in these studies. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">For Belviq, a major issue has been an association with
increased incidences of mammary adenocarcinoma.
Arena was able to address these issues by providing animal data showing
that only high-dose </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">locaserin increased mammary </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">adenocarcinoma due to increased prolactin production
(Arena Pharma 2011 10K).</span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"> </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"> Thereafter,
the FDA Advisory committee voted 18 to 4 to recommend Belviq for the treatment
of obesity, which was subsequently approved by the FDA on June 27, 2012. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">For Qnexa, the FDA requested a comprehensive
assessment of topiramate's (one of the two components in Qnexa) and Qnexa's
teratogenic potential, including a detailed plan and strategy to evaluate and
mitigate the potential teratogenic risks in women with childbearing potential
taking the drug for the treatment of obesity. In addition, the FDA asked Vivus
to provide evidence that the elevation in heart rate associated with Qnexa does
not increase the risk for major adverse cardiovascular events. From Vivus’ 2011 10K filing, it appears that
the company has engaged in discussions with the FDA and has provided the data
that the FDA requested. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Over the past year, the company has provided more data
that shows that Qnexa does not increase the risk for major cardiovascular
events or the observed increases in heart rate. In addition, the prevalence
rate for teratogenic defects is very low (0.29%), which is comparable with the
rates for infants of women who have previously taken antiepileptic drugs. On February 22, 2012, the FDA Endocrinologic
and Metabolic Drugs Advisory Committee voted 20 to 2, recommending that Qnexa
be granted marketing approval by the FDA for the treatment of obesity in
adults. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">In conclusion, based on a favorable weight loss
efficacy of Qnexa over Belviq and that Vivus may have addressed the serious
adverse effects raised by FDA, we believe that it is highly probable (>90%)
that FDA will approve Qnexa for obesity treatment.<o:p></o:p></span></div>
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<b><span style="color: #0070c0; font-family: 'Times New Roman', serif; font-size: 14pt; line-height: 150%;">Market size information <o:p></o:p></span></b></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">According to the National Health and Nutrition
Examination Survey conducted for 2007-2008, 68% of adults in the U.S. were
classified as overweight, defined as a body mass index (BMI) greater than 25.
The survey also found that 33.8% of adults were obese (BMI > 30). The percentage of American adults that are
obese could climb as high as 43% over the next 10 years. Americans spend more than $30 billion annually
on weight-loss products and services.
Assuming 20-25% could be spent on weight loss prescription drugs, the
market size is roughly $6B to $7.5B. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Currently approved anti-obesity drugs include Xenical
(orlistat), marketed by Roche, its over-the-counter counterpart, alli, marketed
by GlaxoSmithKline, and phentermine, in several dosage forms and strengths that
are available from several generic manufacturers. </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"> Thus, </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Belviq
and Qnexa will compete with existing products as well as new products in the
future. These numbers are incorporated
into the valuation of the VVUS stock price (see below). </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"><o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">We have not
overlooked another revenue generating drug from Vivus, Stendra (avanafil), which
was approved by the FDA in April 2012 for the treatment of </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">erectile dysfunction, or ED. ED was reported in 52% of men between the
ages of 40 to 70 in the Massachusetts Male Aging Study, with the incidence
increasing with age. Currently marketed
drugs such as Viagra, Levitra, and Cialis all belong to the same class of inhibitors
for phosphodiesterase type 5 (PDE5), which inhibit the breakdown of cyclic
guanosine monophosphate. Vivus’ Stendra
is also a PDE5 inhibitor and thus will compete with such existing drugs. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"> The worldwide
sales in 2011 of PDE5 inhibitor products for the treatment of ED were approximately
$4.2 billion. Viagra ad Cialis each have
about 45% market share ($2.0 billion for Viagra, $1.9 billion for Cialis),
whereas Levitra has about 7% market share ($300 million). While the market for PDE5 inhibitors will
continue to represent a sizable market opportunity for Vivus, we shall factor
in the competition the company will face as well as how fast and aggressive
Vivus is able to market its product. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Finally, another important point to make is that most
of Vivus’ patent portfolios for Qnexa and Stendra (disclosed in 10K) only cover
the U.S. and Canada. This suggests that
the major sales and revenue source for Vivus products will be from North
America. This was factored into our
stock valuation. <o:p></o:p></span></div>
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<b><span style="color: #0070c0; font-family: 'Times New Roman', serif; font-size: 14pt; line-height: 150%;">Risk<o:p></o:p></span></b></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">A number of risk factors
could affect VVUS’ stock price estimate. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="line-height: 150%; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">(1)<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">FDA approval status. A delayed approval or even a rejection (a
remote possibility) could make the stock price decline. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">(2)<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Marketing and commercialization strategy. With 38 employees, Vivus must seek
pharmaceutical partners for commercialization and marketing of its
products. It has not disclosed any
partnership agreement with any pharmaceutical companies yet in its annual report;
however this could change in the next few months after the FDA decision on
Qnexa. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">(3)<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Patent position and barrier to
entry. Vivus is the exclusive licensee
of 31 patents and 13 published patent applications, all in the U.S. and Canada. Thus, the marketing rights are primarily in
North America. Unless Vivus also applies
for patent protection in other developed or emerging markets, it will not be
able to defend its products worldwide. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">(4)<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Competition: As described in the market information
section, the anti-obesity and erectile dysfunction markets have multiple
competing products. The opportunities
for Vivus to expand market share depends on its products’ superior features or
competitive advantages as well as its marketing strategies. Qnexa appears to have better efficacy than
Belviq and other anti-obesity products.
Once approved, it should have a better value proposition than other
products. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="line-height: 150%; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">(5)<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Business risks: At present, Vivus has secured the
commercialization right for Stendra.
However, it has limited revenue potential due to competition in the ED
market. Thus, the company’s valuation is largely hinged on Qnexa approval. Furthermore, with few staff, Vivus must seek
commercialization partners to expedite its sales. Alternatively, Vivus may strategically seek acquisition
and merger partners. <o:p></o:p></span></div>
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<b><span style="color: #0070c0; font-family: 'Times New Roman', serif; font-size: 14pt; line-height: 150%;">Valuation<o:p></o:p></span></b></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">We
used the FCFE valuation as the primary model for estimating VVUS stock
price. We used median gross profit
margin and net profit margin from comparable companies (e.g. HGSI, SGEN, DNDN,
VRTX, RGEN, or BMY) as a guide to estimate revenue growth, gross profit, net
income, and free cash to equity for a five-year period (2013 to 2017). Based on FEFE model with 15% discount rate, the
estimated stock price is $33.5, $42.5, and $9, respectively, for three
scenarios (baseline, optimistic, pessimistic). The weighted fair value of the stock is $33-$34,
after assigning probabilities to each scenario. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"><br /></span></div>
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<b><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Baseline Scenario</span></b><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">:
This assumes that FDA approves Qnexa for obesity treatment in July 2012 and the
company is able to launch the product in Q4 2012 with a pharmaceutical
partner(s). Our estimate of Qnexa
revenue is the following. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">The
estimated market for </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">weight loss
prescription drugs is ~$7B, as described above.
We can also derive the market size by other method. Assuming the cost for weight loss drug is </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">$2-4/day
and each person is on the regime for average 150 days, it amounts to average
$450/yr/person. Assuming 20% of obese
people (16M Americans) use prescription drugs, the total market size for weight
loss drugs is $7.2B. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Due to
competition from Belviq and other existing anti-obesity drugs (Xenical, alli,
phentermine), our assumption for maximal market share of Qnexa (if approved by
FDA) is 20% ($1.44B) over next few years.
Thus, our estimate for Qnexa sales is $25M (2012), $100M (2013), $220M
(2014), $440M (2015), $750M (2016), and $1.12B (2017). This represents a gradual increasing in
market penetration rate of </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">~1.4%, 3.1%, 6.1%, 10.4%, and 15.6%,
respectively from 2013 to 2017. </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"> <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">As for
Stendra, due to keen competition, we assume the lowest estimate of maximal
sales of $380M by 2017, equivalent of ~9% market share of $4.2B. Our
estimate for Stendra sales is $20M (2012), $40M (2013), $70M (2014), $130M
(2015), $230M (2016), and $380M (2017). <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Combined
both revenue numbers and </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">assume a linear decline of revenue
growth from high growth stage to a normalized 8% over a 4-year time after 2017,
our estimated stock price for VVUS is $33.5 by the end of 2012. </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"><o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Optimistic Scenario</span></b><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">: Build upon the baseline scenario assumption,
the company could potentially grab larger market share for both products. Assuming an extra 10% increase in sales, this
will boost company valuation to an estimated stock price of $42.5. <o:p></o:p></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Alternatively,
the</span><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"> company
may be acquired by other pharmaceutical company. This may represent the best scenario as the
merger and acquisition will expedite the commercialization of its products and
maximize shareholder value. <o:p></o:p></span></div>
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<b><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">Pessimistic Scenario</span></b><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;">:
This represents the worst outcome if FDA rejects Qnexa approval or issues
another CRL. Under this scenario, the revenue is mainly from Stendra. An estimated stock price is $9. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%;">
<span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"> If we assign probability for each scenario, 60% for
Baseline, 30% for Optimistic, and 10% for Pessimistic, then the weighted stock
price is ~$33-$34. <o:p></o:p></span></div>
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<b><span style="color: #0070c0; font-family: 'Times New Roman', serif; font-size: 14pt; line-height: 150%;">Disclosure<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<span style="font-family: 'Times New Roman', serif; font-size: 11pt; line-height: 150%;">We have no position in the
stocks mentioned, but may initiate a long position on VVUS over the next 72
hours. We are independent analysts. We receive no compensation to write about any
specific stock. </span><b><span style="font-family: 'Times New Roman', serif; font-size: 12pt; line-height: 150%;"><o:p></o:p></span></b></div>hsiouchihttp://www.blogger.com/profile/14238013052921628378noreply@blogger.com0tag:blogger.com,1999:blog-4490229326165764685.post-14758553213100952172012-06-27T18:14:00.000-07:002012-06-27T18:14:55.283-07:00Equity Analysis: Amarin (AMRN)<br />
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<span style="font-family: "Times New Roman","serif"; font-size: 18.0pt; line-height: 150%;">Equity
Analysis: Amarin (AMRN)<o:p></o:p></span></div>
<h1 style="text-align: left;">
Summary and investment
decision</h1>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-theme-font: minor-bidi;">The
purpose of this report is to analyze and valuate Amarin stock ahead of an FDA
decision on its AMR101 clinical trial data on or before July 26. The phase III data presented by the Company
is impressive regarding the clinical benefits of reducing triglyceride (TG) and
LDL levels. <o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-theme-font: minor-bidi;">Based on
our research, it is highly probable (>95%) that the FDA will approve the
drug for its designated uses. Such an
approval will significantly enhance Amarin’s valuation. We have <span style="color: red;">a price
target of $18</span> for Amarin by the end of 2012, assuming FDA approval on or
before July 26<sup>th</sup> with a market launch by Q4 2012 through partnership
with pharmaceutical companies (Baseline Scenario). <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-theme-font: minor-bidi;">We also
present other scenarios that might affect company valuation. In the Optimistic Scenario, the assumption is
that FDA approves the use of AMR101 in patients on statin therapy in 2013, thus
expanding market size for the product. The
estimated <span style="color: red;">stock price is $32</span>. </span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-theme-font: minor-bidi;">The initial
market size for AMR 101 is approximately $1B, encompassing more than 3.8
million people with TG levels greater than 500 mg/dL in the United States
alone. Currently, only 3.6% patients are
treated with drugs. AMR101 also has the potential
to expand to </span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">36 million adults in the U.S. who have medium to high
TG</span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-theme-font: minor-bidi;">. Worldwide, patients in the high TG categories
are 2-3 times the US market. Amarin also
plans to market the drug globally. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-theme-font: minor-bidi;">Risks
associated with the stock include delayed approval by the FDA, management’s business
strategies, and patent positions. A
potential upside is that the company may be acquired by another pharmaceutical
company. Given its small number of
employees and no other drugs in the pipeline, merger and acquisition may be the
best strategy to expedite the commercialization of AMR101 and maximize
shareholder value. This may occur after
AMR101 is approved for a second indication in 2013, as its value will get a significant
boost from expanding its target population. </span><o:p></o:p></div>
<div style="text-align: left;">
<span style="font-family: Calibri, sans-serif; font-size: 13px; line-height: 14px;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left;">
<br /></div>
<h1 style="line-height: 150%; text-align: left;">
Business Summary<span style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 150%; mso-ascii-theme-font: major-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-theme-font: major-bidi; mso-hansi-theme-font: major-latin;"><o:p></o:p></span></h1>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Amarin
is a small-cap biopharmaceutical company focused on reducing the risk of cardiovascular
disease through lowering triglyceride levels.
Its leading product candidate AMR101, a pure-form of Omega-3 (96% EPA (icosapent
ethyl)), is currently seeking FDA approval for treating patients with very high
triglyceride (PDUFA date 7/26/12). <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Although
many fish-oil derived dietary supplements or health products contain Omega-3, their
impurity precludes them from being used as a prescription medicine. For a compound to be used in the US as a drug,
it must first meet purity standards as a New Chemical Entity before conducting
clinical trials. Furthermore, the drug must demonstrate
efficacy and safety to gain FDA approval before it can be marketed. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Current
FDA-approved treatments for patients with very high triglycerides (TG> 500
mg/dL) are fish-oil derived omega 3 (Lovaza, containing 84% EPA, 16% DHA) and
fibrates. However, these drugs also
increase LDL levels by 40%. (The LDL
elevating effect was due to the presence of DHA in Lovaza). Fibrates are frequently used as an add-on with
statin to mitigate its LDL effect. Lovaza
and fibrates have ~$1B sales each in 2011. AMR101
has clear competitive advantage over the existing drugs in that, while it
decreases TG level, it does not elevate the LDL level. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">It
is important to note that Amarin is not the only company that produces
pure-form Omega-3. In fact, a Japanese
company, Mochida Pharmaceutical, was the first to launch a pure Omega-3
product, called Epadel, which was approved for hyperlipidemia in Japan in 1994. Mochida may not have conducted clinical
trials following FDA criteria, thus presenting an opportunity for Amarin to
conduct clinical trials in the U.S. The
fact that a pure EPA product has been approved as a prescription drug in Japan
and has been used by numerous patients for over 18 years is indicative of the
overall safety of AMR 101 and its high probability of receiving FDA
approval. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<br /></div>
<h2 style="line-height: 150%; text-align: left;">
Clinical trial data<o:p></o:p></h2>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Amarin
has completed two Phase 3 clinical trials to evaluate AMR101. Both studies (MARINE, ANCHOR) showed that
AMR101 significantly lowered the TG levels without increasing LDL levels. In addition, both studies show safety profiles
similar to the placebo group. If approved, the drug will have an advantage
over Lovaza and fibrates as a single agent for treating patients with high TG
levels that have a high risk of developing cardiovascular disease. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">The
MARINE studies evaluated AMR101 in patients with very high TG levels (>500
mg/dL). The trials were conducted on 229
subjects from 2009 to 2010. At a 4 gram
dose of AMR101, a statistically significant reduction in triglyceride levels (-33%,
p<0.0001) was achieved without increasing LDL levels. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="background: white; font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Other favorable benefits of AMR101 include
statistically-significant reduction in other lipid and inflammatory biomarkers,
including Apo-B (-8.5%), non-HDL-C (-18%), Total-Cholesterol (-16.3%), VLDL-C
(-28.6%), Lp-PLA2 (-13.6%), and hs-CRP (-36%).
</span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">The
ANCHOR studies evaluated AMR101 in patients defined as high TG/mixed
dyslipidemia (TG level between 200-500 mg/dL) who are under statin
treatment. The trials started in 2010
and ended in 2011, involving 702 study subjects. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">In
the study group taking AMR101 and statin, there was a <span style="background: white;">statistically significant decrease in TG level (-21.5%, p<0.0001) and
a further reduction of LDL-C levels (-6.2%, p<0.0067) compared to the
placebo group (statin alone). </span>The 4 gram dose was also associated with
statistically significant reductions in non-HDL-C (-13.6%, p<0.0001), Apo B
(-9.3%, p<0.0001), Lp-PLA2 (-19%, p<0.0001) and high-sensitivity
C-reactive protein (hsCRP) (-22%, p<0.001), at week 12 compared to placebo.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="background: white; font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">AMR101 also appears to be rather safe: its safety profile is
comparable to a placebo. The superior
efficacy, its safety profile, and other beneficial effects, are the primary
determining factors that we believe the drug has greater than 95% probability
of receiving FDA approval by July 26, 2012.
</span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="background: white; font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">In<span class="apple-converted-space"> </span></span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">December
2011<span style="background: white;">,<span class="apple-converted-space"> </span></span>Amarin<span class="apple-converted-space"><span style="background: white;"> </span></span><span style="background: white;">started enrolling patients in a preventive clinical
trial, titled REDUCE-IT (Reduction of Cardiovascular Events with<span class="apple-converted-space"> </span></span>EPA<span style="background: white;">— Intervention Trial). It is
designed to evaluate the efficacy of AMR101 in reducing major cardiovascular
events in a high risk patient population on statin therapy. This will be a
multi-year program involving tens of thousands study subjects. Since the outcome of this program is years
away, we do not factor this into our valuation model. </span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="background: white; font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Nonetheless, it is interesting to note that Mochida
Pharmaceutical has already conducted similar clinical trials (JELIS) in Japan
to evaluate the use of Epadel (pure EPA) as preventive medicine for coronary
diseases. In November 2006, Mochida
reported two studies on pure EPA plus statin vs statin alone with over 18,000
enrolled patients. The studies show that
</span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">the
combination of EPA+statin reduced 19% CV disease over five-year period. Among a subgroup of study subjects with very
high TG levels and low HDL, there was a 53% reduction in CV disease. We will follow up on future updates on the
trial results to gauge its potential as preventive therapy. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<br /></div>
<h2 style="line-height: 150%; text-align: left;">
Market size information<o:p></o:p></h2>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">There
are 3.8 million people in the U.S. with TG level greater than 500 mg/dL. Currently, only 3.6% patients are treated
with pharmaceutical medicines. This
suggests that if AMR101 is approved, it could have potentially larger market
share than the current $1B in LOVAZA sales.
Worldwide, patients in this very high TG category are 2-3 times the U.S.
market. Amarin also plans to market the
drug globally. The NDA for the first
indication was submitted in Q4 2011 and will receive an FDA response on
7/26/12. If approved, the Company plans
to launch the product before Q1 2013.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">AMR101
may also be used in people with medium-high TG level (< 500 mg/dL, >200
mg/dL). This was evaluated in the ANCHOR
studies. There are 36 million adults in
US in this category. Less than 4% of
people in this category are currently treated with fibrates, which had $1B
sales in 2011. Therefore, if AMR101 is
approved, it could compete with fibrates and potentially expand the market
size. Amarin has submitted a
supplemental NDA (sNDA) for the second indication in June 2012 (check the
date). FDA decision is pending till next
year. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">The
preliminary data from the REDUCE-IT study group in Japan looked encouraging. More updated data will be reported toward the
end of 2012. Since the trial is still
years away, its potential impact is not factored into stock valuation. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left;">
<br /></div>
<h1 style="line-height: 150%; text-align: left;">
Risk<o:p></o:p></h1>
<div class="MsoNormal" style="line-height: 150%; text-align: left;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Below are risks that
could affect the AMRN stock price estimate. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="line-height: 150%; text-align: left; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-fareast-font-family: "Times New Roman";">(1)<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">FDA approval status. A delayed approval or even a rejection (a remote
possibility) could make the stock price decline. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; text-align: left; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-fareast-font-family: "Times New Roman";">(2)<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Marketing and commercialization strategy. At the Jefferies 2012 Global Healthcare
conference, CEO Joseph Zakrzewski stated that the company would commercialize
the AMR101 on its own or partner with pharmaceutical companies and that the
company has received significant amount of interest from pharmaceutical
companies. With only 30+ employees, it
will be extremely challenging if the company does not seek pharmaceutical
partners to commercialize its product. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; text-align: left; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-fareast-font-family: "Times New Roman";">(3)<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"> Patent
position and barrier to entry. Amarin
has filed 25 patent applications. It is
extremely important that the company seeks patent protection to exclude
competition. According to CEO, the
compound is not easy to manufacture, thus creating an effective barrier to
entry. Nonetheless, patent protection is
an integral part of the company’s profit and valuation. In Q3 2011, when the USPTO rejected one of
its patents, the stock tumbled 20% in one day and continued to slide over
several months. The company appealed the
decision and the patent was finally awarded in March 2012 for the use of AMR-101
for treating high TG levels. The stock price
jumped 14% in one day on that news. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; text-align: left; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-fareast-font-family: "Times New Roman";">(4)<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Competition: Amarin competitors include
GSK and Provona, who market and hold the patents for Lovaza. Abbott Laboratories currently markets Tricor
and Trilipix for the treatment of very high TG and mixed dyslipidemia. Several biotech companies are also
developing omega-3-based products, some in phase 3 clinical trials. The products, if approved, could compete with
AMR101 for market share. However, these
threats would be 3-4 years away. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; text-align: left; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-fareast-font-family: "Times New Roman";">(5)<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Business risks: At present, AMR101 is the only lead product of
the company. In the 2011 annual report,
the company disclosed that Amarin completed a private placement of $70 million
(with private equity and venture funds) in 2009. The proceeds were used primarily to fund the
AMR101 clinical trials. In connection
with the agreement, Amarin has essentially ceased the development for other
programs, including Huntington’s, Parkinson disease, and Myasthenia gravis.
This suggests that AMR101 is the sole product of the company in the foreseeable
future. The success or failure of this
product determines the fate of this company.
<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="line-height: 150%; margin-left: 0.75in; text-align: left;">
<br /></div>
<div style="text-align: left;">
<span style="font-family: Calibri, sans-serif; font-size: 13px; line-height: 19px;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left;">
<br /></div>
<h1 style="line-height: 150%; text-align: left;">
Valuation<o:p></o:p></h1>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">We
used the FCFE valuation as the primary model for estimating stock price. We used median gross profit margin and net
profit margin from comparable companies (e.g. HGSI, SGEN, DNDN, VRTX, RGEN, or
BMY) as a guide to estimate revenue growth, gross profit, net income, and free
cash to equity for a five-year period (2012 to 2016). Based on FEFE model, the estimated stock
price is <span style="color: red;">$18 and $32</span>, respectively, for two
scenarios (baseline, optimistic). <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Baseline
Scenario: This assumes that FDA approves AMR101 for very high TG patients on
7/26/2012 and the company is able to launch the product in Q4 2012. Revenue growth reflects market penetration
rate of ~0.6%, 3.6%, 9%, 16%, and 26%, respectively from 2012 to 2016, in a
total global market size $3B for very high TG patients. We also assume a linear decline of revenue
growth from high growth stage to a normalized 8% over a 4-year time after 2016.
The slower growth rate after 2016
reflects competition from other products entering the market with similar
benefit. <span style="color: red;">Estimated
stock price: $18.</span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Optimistic
Scenario: This assumes that FDA approves AMR101 for very
high TG patients on 7/26/2012 and the company is able to launch the product in Q4
2012. Furthermore, FDA approves the use
of AMR101 for second indication (sNDA) in mid 2013. The approval enables the expansion of the
drug to a larger patient population. Revenue growth reflects market penetration
rate of ~0.3%, 2%, 6%, 12%, and 18%, respectively from 2012 to 2016, in a total
global market size $6B. <span style="color: red;">Estimated stock price: $32. </span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Other
possible outcomes include a delayed response from FDA on the approval or an
outright rejection. This will be a major
setback for stock and company value. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: left; text-indent: 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">On
the other extreme, </span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-theme-font: minor-bidi;">a potential unexpected surprise is that the
company may be acquired by other pharmaceutical company. This may represent the best scenario as the
merger and acquisition will expedite the commercialization of AMR101 and
maximize shareholder value. The takeover
may occur after AMR101 is approved for the second indication in 2013, as its
value will get significant boost from an expanding target population.</span></div>
</div>
<br />hsiouchihttp://www.blogger.com/profile/14238013052921628378noreply@blogger.com1