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  • furusawa_99 furusawa_99 Jul 18, 2000 5:11 PM Flag

    Cautious on the Forest Terrain

    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
    new prescriptions.

    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.

    Forest has
    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.

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    • 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.

      ----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.

    • alzheimers not alzhimers

    • as soon as you find out what's going on. This does not look like good news.

    • Called brokers but nobody knows anything.

    • 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
      have called."

    • 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"?

    • 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
      unpackaged die.

      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.


      • 1 Reply to furusawa_99
      • 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
        higher. The
        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.
        The MTX
        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
        financial ratios.
        II.Revenue potential for core MAX
        products is good thanks to the growing needs for burn in
        of DSP and wireless ICs.
        III.Segmentation of
        DRAM memory types (DDR, Rambus) should lead to higher
        capital expenditures by chip makers for burn in needs.