Specialty Pharma Stock Picks From David Amsellem Of Piper Jaffray

• On 8:15 am EST, Friday November 6, 2009

67 WALL STREET, New York - November 6, 2009 - The Wall Street Transcript has just published its Pharmaceuticals Report offering a timely review of the sector to serious investors and industry executives. This 76 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Small-Cap Specialty Pharma - Patent Expiration - Pending Health Care Reform - Cultivating And Expanding R&D Pipelines - Chinese Drug Manufacturers - Brisk M&A Activity - Indian Pharma VS. U.S. Pharma - Competition From Generics - FDA Approval Process - Clinical Research Outsourcing Market - Stem Cell-Based Technology - Cancer Radiation Therapy - Expansion Into Asian Markets - Traditional Chinese Medicine VS. Western Medicine In Chinese Pharma

Companies include: Aeolus Pharmaceuticals (AOLS.OB); Nutra Pharma (NPHC.OB); Quick-Med Technologies (QMDT.OB); Abbott Labs (ABT); Alexza Pharmaceuticals (ALXA); AmexDrug Corporation (AXRX.OB); Aurobindo Pharma (AUROBINDOP.BO); BioClinica (BIOC); BioPharm Asia (BFAR.OB); Biocon (BIOCON.BO); Cephalon (CEPH); China Sky One Medical, Inc. (CSKI); Claris Lifesciences (CLARICH.BO); Cortex Pharmaceuticals (COR); Daiichi Sankyo (DSKYF.PK); Dr.Reddy's (RDY); Elan (Elan); Eli Lilly (LLY); Forest (FRX); GeoPharma (GORX); Glaxo (GSK); Glenmark (GLENMARK.BO); Johnson & Johnson (JNJ); Lupin (LUPINSL.BO); Mannatech (MTEX); Matrix Laboratories (ATRIXLAB.BO); Medical Nutrition (MDNU); Merck KGaA (MKGAY.PK); Mylan (MYL); NeoStem (NBS); Novartis (NVS); Pfizer (PFE); Piramal Healthcare (PIRAMALHE.BO); Provectus Pharmaceuticals (PVCT.OB); Ranbaxy (RANBAXY.BO); Salix Pharmaceuticals (SLXP); Shire (SHPGY); Telik (TELK); Winston Pharmaceuticals (WPHM.OB).

In the following brief excerpt from just one of the in depth interviews in the 76 page report, an industry expert discusses the outlook for the sector and for investors.

David Amsellem is a Principal and Senior Research Analyst at Piper Jaffray who covers specialty pharmaceuticals. Prior to joining Piper Jaffray in 2008, Mr. Amsellem spent five years at Friedman Billings Ramsey, where he was a Senior Research Analyst covering small- and mid-cap pharmaceuticals from 2006 to 2008, and a Senior Associate on the biotechnology equity research team from 2003 to 2006. Mr. Amsellem was recognized as the number one-ranked analyst in North America for accuracy of earnings estimates in the pharmaceuticals sector in the 2008 Financial Times/StarMine "Best Brokerage Analyst" survey. He graduated from Cornell University with a bachelor's degree in industrial relations.

TWST: Where are you focusing your attention in the smaller-cap pharma space these days?

Mr. Amsellem: In terms of the smaller caps - companies under $10 billion or under $5 billion in market cap - typically we focus on specialty pharma companies with significant brand businesses. Our focus is mainly outside of generics for now. We typically like companies that have managed their product life cycles well. In other words, they have the ability, either through development or acquisition, to sustain cash flow growth even after key top-line drivers have seen their patents expire. So companies that have been active on the acquisition front, companies that have been active in terms of deepening their R&D pipeline to where they can really sustain their business models over the long term, those are companies that we tend to be more favorably disposed towards. The reality in the specialty pharma business is that assets have finite lives. In the biotech space, biologics have much greater patent protection, much greater market exclusivity, especially when compared to small molecules. I'm thinking about where biosimilars will be, and it's going to be much tougher for generic competitors to really make a major dent into biologics the way they have in small molecules. So for specialty pharma, the goal for companies is to continually find ways to reinvent themselves. That is the challenge, and it's a big challenge, and it's one of the reasons that the multiples for spec pharma companies typically trade closer to, say, big pharmas than they do to big biotech.

TWST: What do you mean?

Mr. Amsellem: The challenge with specialty pharma is terminal value, right? You have a product that's generating cash flow, but it goes off patent and in three years, five years, seven years - whatever it is - it's a finite life, whereas biologics don't have that kind of issue yet. That is being legislated now though. Now for a spec pharma company, five years down the road - maybe earlier, maybe later - you can see a significant decline in revenue and a significant decline in earnings power. That dramatically impacts terminal value. So on one hand you have businesses that generate very significant cash flows. In terms of value and cash flows, these are stocks that are pretty cheap by and large. But there is the challenge of terminal value. So that's why you've seen this kind of multiple compression. You've seen that with Big Pharma as well. In terms of this idea of finite patent life and generic competition on the horizon, that's probably the single biggest reason for multiple compression in the space. And this is just something you just don't see - or haven't seen historically - with biotech.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 76 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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