This morning, drug maker Forest Laboratories
[FRX] beat earnings estimates for the fifth consecutive
quarter, announcing EPS of $0.31 vs. the Street's
consensus of $0.26. The 15 percent surprise was built
largely on sales of its lead drug, Celexa, indicated for
the treatment of depression. Forest also highlighted
a series of moves that further strengthened its
pipeline during the quarter. Because of its high valuation
in the specialty pharmaceutical sector, we are
initiating coverage of Forest with a hold rating.
Forest is heavily dependent on sales of Celexa, a drug
that comprises 56 percent of its revenues. In the most
recent quarter, Celexa sales reached $150m, nearly
double the sales of the same quarter a year ago.
With the merger of Pfizer [PFE] and Warner-Lambert
[WLA], Forest terminated its co-promotion agreement on
the drug with Warner-Lambert by paying a one-time fee
of $14m. This reduced earnings by $0.10 per share
this quarter. Forest also expanded its sales force by
40 percent to maintain the promotion and sales
growth of Celexa. These moves resulted in an 80 basis
point gain between March and June to 12.5 percent of
Two new partnerships will
provide Forest with important product opportunities for
the future. Forest has licensed Memantine, the
leading prescription drug for dementia in Germany, from
Merz and Co. and is currently in phase II studies of
the drug. It hopes the drug will become a leader in
the US in the treatment of Alzheimer�s, neuropathic
pain, and AIDS-related dementia.
also signed up another German partner, Merckel, for
its ML-3000, a COX-LO inhibitor for osteoarthritis.
Phase III trials are underway in Europe and are being
readied in the US.
Forest has five drugs in
late-stage clinical trials for indications including
depression, pain, urinary incontinence, anxiety, and asthma.
The company's goal is to become the most attractive
marketing partner among the specialty pharmaceutical group.
With no proprietary drugs set to launch until year-end
2001, however, we will be keeping an eye on Forest�s
execution in the coming months.
Gruntal & Co. analyst Jeffrey Kraws said the news
hasn't prompted him to change his earnings estimates.
The analyst said his financial model for Lilly
"assumes some form of generic competition" shortly after
the patent that covers the drug's composition expires
----this certainly bodes well for
FRX. Close above 100 within a few days. WAAAAAY
Yeah, sure ---- BT is a "Doctor" - I wonder how
he spells "namonya" or "larenjitis". jeez.
Yo BT ---- check out this Eli Lilly news tonight on
CBS Marketwatch. This cant be good for that short you
opened at 80
Gruntal & Co. analyst Jeffrey Kraws said the news hasn't
prompted him to change his earnings estimates. The analyst
said his financial model for Lilly "assumes some form
of generic competition" shortly after the patent
that covers the drug's composition expires in 2001.
Up 5 this morning, down 12 this
Did buyers think FRX would be taken over?
I called investor relations but "he is in a meeting
and can't come to the phone. A lot of other people
You seems know a lot about FRX. I was busy on
bio-tech and didn't do DD on FRX.
One question: Why
a company like FRX with no R&D or drug didcovery
division can have such potential? Where are other USA drug
firm? How larget market is Celexa? (I know there are
Prozac, Zolof and other SSRIs). Since Celexa got proved
in 1998, how long is it market exclusive period?
I notice that last qrt revenue was flat comparing
to previous qrt. Will Celexa have growth or just
reached the top? With new version of Prozac coming into
market, and MRK's new anti-depression drug, how high do
you think FRX can go?
<<Forest also expanded its sales force by
40 percent to maintain the promotion and sales
growth of Celexa.>>
The sales force was
expanded 70%, from 850 to 1425
<<Because of its high valuation in the specialty
pharmaceutical sector, we are initiating coverage of Forest with
a hold rating.>>
Who are "we"?
Kevin Gooley of S&P PersonalWealth.com relayed
selected stock picks on Bloomberg TV
FRX doing well with antidepressant and has more
products on the way
Aehr Test Systems,� AEHR� a small cap company,
provides burn-in and parallel test equipment for DRAM
other semiconductor manufacturers. Burn in is a way to
check reliability of a chip after it is built. Many
chips that pass functional tests at room temperature
may not work at high or low temperatures or under
active voltage or current inputs. Burn in equipment
subjects chips to extreme temperature and stress
conditions to filter out defective parts.
Systems: The company is seeing a broadening of customer
base for its MAX3 systems.
These tools are
designed for burn-in of communications chips with low
levels of logic andlow voltage needs. Lucent
Technologies is a recent customer in addition to an ongoing
business from Texas Instruments. As a result of this
surge, the MAX family should contribute to more than 50%
of revenues, up from a normal level of about
DiePak Products: The company recently obtained a second
patent on its reusable die packages. The demand for MCMs
(multichip modules) is increasing thanks to a growth in PDAs
(e.g. PalmPilots) and cell
phones. Diepak products
are ideal for burn-in of chips that become a part of
MCMs. This market is small at present and it is hard to
quantify the growth, but this is a promising
In April, Aehr announced an agreement (see details)
to supply Diepak carriers to Chip Supply, Inc. a
leading provider of burn-in and test services to MCM
makers. With this arrangement, Aehr should be able
reach several small customers with needs for testing
DRAM Prices: The unit demand for DRAM
memory is increasing and the prices have edged up to $7
(64 MB SDRAM chip). Stable or rising DRAM prices is a
sign of a healthy market, which should
lead to capacity expansion by chip makers. That bodes
well for Aehr's MTX parallel testers designed for DRAM
Aehr has three major product lines: MAX systems for
burn in of DRAM and logic devices, MTX massively
parallel test systems for doing burn in and electrical
tests simultaneously of DRAM chips, and Die Pak
carriers. About 40% to 50% of revenues come from MAX and
MTX lines each, and about 10% from Die Pak. A typical
testing sequence after chips are built on silicon wafers:
(i) Parametric tests (ii) Wafer sort of good die
(iii) Wafer sawing and packaging of individual chips
(iv) Burn in of those chips (v) Final tests for
Aehr's systems are used to accomplish part (iv). The MTX
tools, priced between $500K and $1 million, enable DRAM
makers to perform part of the final testing while doing
the burn in. That reduces the amount of extensive
final testing on expensive testers saving chip
producers time and money. Die Pak carriers are a different
type of product. These are reusable, temporary
packages for checking reliability of packaging.
Customer Base: Company's new burn in systems MAX3, priced
around$300K to $400K, are gaining acceptance among DSP
(digital signal processors) makers. During fiscal 1999,
Texas Instruments was a key customer with 18% of sales.
DRAM maker Infineon (formerly Siemens) has been the
company's largest customer accounting for about half the
revenues in 1997 and in 1998, and about 22% in 1999.
Aehr's MTX systems are well-accepted by European and
Taiwanese DRAM makers, but it has only a limited presence
in the U.S. and Korean DRAM facilities. Motorola has
been the primary user of its Die Pak carriers. Over
70% of the company sales have been to customers for
deliveries outside United States.
Valuations, Financial Strength: Valuations wise
Aehr is one of the best bargains in the chip sector.
For a stock trading at $7, the company has about $5
in book value per share (price/book about 1.3). The
revenues, after seeing a nadir a few quarters ago, have
gone up sequentially in the past three quarters. Its
price/ sales is slightlyabove 2. The current ratio
(current assets / current liabilities) is about 7.5 with
practically no long term debt.
Growth Prospects: The
company has good growth opportunities for the next few
years. Aehr has announced that the revenues for the
fourth quarter (ending May 2000) should be sequentially
company expects to return to profitability
in fiscal year 2001 (June 2000 - May 2001).
Aehr is seeing a good interest in its new MAX3 family
of burn in systems. Texas Instruments, a launch
customer, has purchased multiple systems. These systems are
well suited for chips used in wireless, handheld
devices because of their ability to force burn in
voltages below 1.0 volt, a necessity for low power
consumption applications. While the company did not offer a
specific guidance, we think, the potential for these
systems is large and the company's development work with
TI will help convince other chip makers.
testers is another area of possible growth. The tools are
useful in decreasing testing costs for the emerging
PC133, DDR and Rambus DRAMs. As explained in our other
reports, different DRAM types will coexist. PC133 is
likely to be the dominant memory type for low and mid
priced PCs, DDR is well suited for workstation and
server applications and Rambus should find a niche in
high end desktops.
The segmentation bodes well for
Aehr since it necessitates chip makers to do more burn
Though MTX tools look promising, a few
words of caution are necessary. Qualification cycles
for such tools are long. It can take six to nine
months before a memory manufacturer can decide on a
purchase. The infrequency and the size of orders can create
huge up or down swings in bookings and in resulting
revenues, especially for a small company like Aehr. Also,
DRAM business is cyclical and accordingly, demand for
Aehr's equipment will vary. Aehr is seeing an increased
demand for Die Pak carriers, for aerospace electronics
modules, and for chips in portable devices. The company
has recently got orders from Motorola, Sandia
National Labs and Rockwell Collins.
The company has
been investing aggressively to develop a wafer level
burn in tool. It enables burn in before a wafer is
sawed, thus saving time in detecting problems. Some of
the funding for the project has come from DARPA
(Defense Advanced Research Projects Agency). The company
is optimistic about the commercial application of
this work. Expect Aehr to launch this tool at the
Semicon West show in July with shipments beginning 2001.
There has been an interest from major DRAM producers.
However, it is too early to gauge growth
Favorable Factors for Stock
I.Good valuations and
II.Revenue potential for core MAX
products is good thanks to the growing needs for burn in
of DSP and wireless ICs.
DRAM memory types (DDR, Rambus) should lead to higher
capital expenditures by chip makers for burn in needs.