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  • investora2z investora2z Nov 3, 2013 9:42 AM Flag

    Prospects will improve if MusclePharm shifts production to Biozone

    A recent article on SA mentions Biozone as one of the good bets in the sector. Author's opinion is mainly based on the possible benefits of the recent deal with MusclePharm (MSLP). The author states that the company's business prospects have improved over the last few quarters due to deals with OPKO Health (OPK) and MusclePharm. The $2 million investment into BioZone by MusclePharm suggests that it may provide BioZone with high volume business. The main benefit for MusclePharm could be reduction in production costs which could help it improve its bottom-line margins. Importantly, the author mentions the possibility of acquisition of the contract manufacturing operations part of Biozone's business. The author considers this a possibility due to the size of the investment made by MusclePharm. The high fixed costs of the manufacturing can be recovered if the volumes increase, and profit margins will expand. Cost of goods sold was about 70% of revenue in H1'13, but it will come down to 50% if the sales increase to $30-40 million per annum. The author estimates $10 million profits if that volume is achieved. Considering that MuscelPharm has an annual turnover of nearly $100 million, shifting 20% of the production can change the fortunes for Biozone's contract manufacturing business. Importantly, if the cost of production of MuscelPharm's products come in lower due to QuSomes technology, then it will attract the attention of other manufacturers. In addition, the technology can help improve the efficacy of the supplements. Generic drug manufacturers like Teva (TEVA) are also trying hard to improve margins, and the competition is often price based. Most importantly, Dr. Phillip Frost is at the helm in Teva and OPKO, and he is on the lookout for opportunities to reduce production costs. OPKO is already testing the technology, and investment by another of Frost's companies, MusclePharm, indicates that he has seen potential in the technology based on testing so far