Monday, July 24, 2006

Calls of Note Part 4

- Goldman Sachs notes that reports late Sunday evening suggest that HCA (NYSE:HCA) has reached a preliminary agreement with a private equity investors group led by Bain Capital and KKR for a leveraged buyout of the company that values HCA at $51 share, 6% above Friday's close and 22% above the company's 52-low from mid-June. The reported terms value HCA at 8.0x current estimate of 2006 EBITDA and roughly $830,000 per bed. This compares to 7.7x and $580,000 per bed for the hospital sector.

Within the sector, the firm highlights Triad Hospitals (NYSE:TRI). At 6.5x 2006 EBITDA Triad has the lowest EBITDA valuation in the hospital group. Applying HCA's 8.0x potential acquisition multiple to TRI would imply a $53 equity value or 32% appreciation from Friday's close. Firm reaffirms Buy rating on Triad and $50.50 price target.

Notablecalls: Expect to see some interest in TRI this morning.

- Morgan Stanley is defending Amylin Pharma (NASDAQ:AMLN) as investor concern has risen about a potential link between Byetta and pancreatitis (inflammatory damage to the pancreas).

Firm notes they examined the FDA's Adverse Event Reporting System (AERS) and medical literature for links between Byetta and pancreatitis. While there are 42 reports of pancreatitis in Byetta's AERS database, most are duplicative or from patients with an obvious etiology (e.g. gallstone, pancreatic mass, other drugs), and after adjusting for these factors, they find only nine cases (most have limited information, and may also have other risk factors). With almost 200,000 patients on Byetta, this rate is lower than the baseline 17 per 100,000 rate in the general population.

The FDA, physicians, and the general public are all sensitive to safety issues around drugs after recent setbacks such as Vioxx. However, the firm exits their review less concerned and with our investment thesis intact ($40-$50 trading stock for 2006 with potential to double in 3-5 years). They have not spoken with the company and look forward to Monday evening's earnings call, but would use meaningful weakness as a buying opportunity.
Reits Overweight.

Notablecalls: Not actionable but good to know category.

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