Should You Trade These Coming Small Cap Health Care Earnings Reports (ARRY, ICUI & TARO)?
Small cap biotech Array Biopharma (ARRY), medical device stock ICU Medical, Incorporated (ICUI) and pharma stock Taro Pharmaceutical Industries Ltd. (TARO) will report earnings after the market closes on Monday.
Small cap biotech stock Array Biopharma (NASDAQ: ARRY), medical device stock ICU Medical, Incorporated (NASDAQ: ICUI) and pharmaceutical stock Taro Pharmaceutical Industries Ltd. (NYSE: TARO) are all scheduled to report earnings after the market closes on Monday. That means traders and investors with a long term time horizon alike have two more trading days to open or close a position in these small cap biotech, medical device and pharmaceutical stocks. So what’s the best trading and investing strategy for these small caps? Here is a quick overview of all three:
Array Biopharma (NASDAQ: ARRY) Recently Raised $70.9 Million in a Stock Offering
Array Biopharma is becoming a late-stage development biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule drugs to treat patients afflicted with cancer. Specifically, Array Biopharma has two wholly-owned programs, ARRY-614 and ARRY-520, and three partnered programs, selumetinib (with AstraZeneca), MEK162 (with Novartis) and danoprevir (with InterMune/Roche) that have the potential to begin Phase 3 or pivotal trials by the end of 2013. A quick look at Array Biopharma’s newsfeed reveals the company is a regular presenter at investment and health care conferences while in December, the company sold 18,000,000 shares of its common stock for $3.65 per share plus an overallotment of 2,700,000 shares. The total net proceeds for Array Biopharma came to $70.9 million. Investors should be aware that Array Biopharma has reported revenues of $85,135k (fiscal 2012), $71,901k (fiscal 2011) and $53,880k (fiscal 2010) for the past three fiscal years ending June 29th along with net losses of $23,581k (fiscal 2012), $56,324k (fiscal 2011) and $77,631k (fiscal 2010). So it looks like Array Biopharma has enough funds for at least this year and investors should pay attention to any news regarding trials. On Thursday, Array Biopharma rose 0.27% to $3.77 (ARRY has a 52 week trading range of $2.55 to $6.17 a share) for a market cap of $359.66 million plus the stock is up 58.4% over the past year and down 40.8% over the past five years.
ICU Medical, Incorporated (NASDAQ: ICUI) Both Raised and Lowered Its Guidance for the Year
ICU Medical develops, manufactures and sells innovative medical technologies such as custom I.V. systems, closed delivery systems for hazardous drugs, needleless I.V. connectors, catheters and cardiac monitoring systems used in vascular therapy, oncology and critical care applications. On Monday, ICU Medical announced the voluntarily discontinuation of one of its products over FDA concerns about its safety along with sharply decreasing US sales volumes caused by customers switching to the company's newer technologies. However, the news had little impact on ICU Medical’s share price. Back in October, ICU Medical reported a 6% third quarter revenue increase to $81.4 million along with a 32% net income increase to $12.2 million. ICU Medical also raised its earnings guidance for the full year, but cut its revenue estimates due to the weaker euro and softer results from the critical care business. That means investors may not face any negative surprises on Monday. On Thursday, ICU Medical rose 0.03% to $60.45 (ICUI has a 52 week trading range of $44.91 to $64.25 a share) for a market cap of $881.75 million plus the stock is up 30% over the past year and up 68.1% over the past five years.
Taro Pharmaceutical Industries Ltd. (NYSE: TARO) Is Being Bought Out in an Increasingly Messy Merger Deal
Israel based Taro Pharmaceutical Industries is a multinational, science-based pharmaceutical company focused on the discovery, development, manufacturing and marketing of prescription and over-the-counter (OTC) pharmaceutical products focused on pediatric creams and ointments, liquids, capsules and tablets, mainly in the dermatological and topical, cardiovascular, neuropsychiatric and anti-inflammatory therapeutic categories. Taro Pharmaceutical Industries also develops and manufactures active pharmaceutical ingredients (APIs) that are used in its finished dosage form products. Back in July, Taro Pharmaceutical’s board rejected a buyout offer for $24.50 per share (a 26% premium) from Sun Pharmaceutical Industries Ltd. for being too low. Apparently, the two companies have been discussing an acquisition on and off since mid-2007. In August, Sun Pharmaceutical Industries offered $39.50 per share – which was accepted by the board but not by minority shareholders. Then a December extraordinary general meeting where minority shareholders would be allowed to vote on the deal was postponed. Investors should note that Sun Pharmaceutical Industries already owns 66% of Taro’s shares and controls 77.5% of voting rights while Taro contributes about a third of Sun’ earnings. There is also apparently a minority shareholder accusing Taro Pharmaceutical Industries’ management of having under-reported net sales – meaning there is plenty of risk for investors and traders alike should the deal not go through. On Thursday, Taro Pharmaceutical Industries rose 0.50% to $46.63 (TARO has a 52 week trading range of $30.50 to $50.00 a share) for a market cap of $2.07 billion.
The Bottom Line. Investors and traders alike probably should not expect any surprises with the earnings reports of small cap biotech Array Biopharma and medical device stock ICU Medical, but there could still be plenty of fireworks and risk with pharma stock Taro Pharmaceutical Industries Ltd. long after its earnings report is released.
John Udovich is a paid contributor of the SmallCap Network. John Udovich's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.
Do NOT buy or sell ICUI, TARO or ARRY until you have read everything.
SmallCap Network provides comprehensive research and opinions on ICUI, TARO and ARRY. |
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| Date: | May 24, 2013 | |
| Price: | Free | |
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Another stellar performance from Taro
Last quarter results are in. another stellar performance for Taro. The $39.5/share was a bad joke. and for all practical matters is now DEAD!. IF there is a new offer let it be a fair price reflecting Taro's value and performance. Or better yet, Taro's board should walk away from Sun's shameful offer for its own dignity and the benefit of its shareholders - As its is supposed to be
Quarter ended December 31, 2012 Highlights - compared to December 31,
2011
Nine months ended December 31, 2012 Highlights - compared to December
31, 2011
Cash Flow and Balance Sheet Highlights
Taro, a jewel that Sun Pharma is attemptong to "steal"
Sun Pharma, an Indian drug company, is trying to squeeze out Taro's minority shareholders by offering $39.5 per share (about $590 M for all shares held by minority), which represents 4.5 times of Taro’s TTM EBITDA. While, according to Bloomberg, the average EBITDA multiplier for acquisitions of pharmaceutical companies in the dermatology segment in the last 15 months is 14. Sun’s offer for the minority shares is about a third of its real merger value! Yet Sun Pharma could not have dared to deliver such an insult to Taro’s minority, without the collaboration of Taro’s board.
Recently Sun offered more than 25xEBITDA for DUSA Pharmaceuticals, a dermatology company, yet they offered miserly 4.5xEBITDA for Taro’s minority shares, even thou, based on performance, Taro is much superior to DUSA.
Taro is expected to have $450-$500 million in cash and cash equivalents in the quarter ending in December 2012. Effectively, Sun is planning on paying for Taro’s mostly by Taro's money!
While normally, the offer’s price for mergers is at premium to the market price, Sun-Taro tries to rewrite the rules- In this case it is the other way around. Currently, Taro is traded at the marketplace at a price which is at %25 premium to Sun’s offer. Go figure the logic behind Sun’s offer.
Why does Sun think it can squeeze the minority out?
(1) Because Sun already has a strong foothold in Taro (Sun owns %66 controlling
interest its outstanding shares and %77 of the voting rights) and they think
they can get away with low-balling the minority.
(2) Taro's board is composed of mostly Sun's appointees with a pseudo
independent director, and they all march to Sun's drums (I would not be
surprised if Taro's board is found to be in a breach of its fiduciary duty to
its minority - time will tell.)
(3) Sun squeezed the minority before – It did it to Caraco Pharmaceutical’s
minority.
Sun-Taro’s
motto is:"If you succeed (squeezing) once, try try again"
Above we have all the ingredients needed for a minority squeeze out (Some call
it oppression of the minority.)
However, in the DUSA case, Sun did not have any foothold in DUSA, and therefore none of the above existed; Sun had to pay a full price for DUSA, otherwise they would have been shown the door!
What a sweet steal-deal it is for Sun... If it will go through.. Only in their dreams it will!
May be recent events, such as an interview in Bloomberg’s with Makov Sun’s Chairman and the “postponement” of the merger’s proxy, are hints that Sun and Taro’s board are starting to realize how unrealistic their offer is-was and are likely to reconsider.
Full merger price for Taro should be at by 14xEBITDA implying $140/shares. Miserly $39.5 is just laughable.
