Tuesday, August 15, 2006

Calls of Note Part 1

- Merrill Lynch is positive on New River Pharma (NASDAQ:NRPH) after Shire (NASDAQ:SHPGY) and Barr (NYSE:BRL) settled patent litigation regarding Adderall XR, NRP104's soon to be predecessor. The settlement will prevent Barr from launching a generic version of Adderall XR until April 1, 2009. But, importantly, the settlement will give New River and Shire more than 2 years to transition patients to NRP104 from Adderall XR, assuming an early '07 launch. Firm believes this significantly reduces the risk related to the upcoming FDA decision and Shire's commitment to the NRP104 launch and transition, which now must be completed by 1Q09.

The bear case that Shire is not committed to NRP104 should be significantly eroded by Shire's settlement with Barr on Adderall XR generics. There will be generic competition for Adderall XR by 2Q09, which increases the importance of quickly transitioning patients from Adderall XR to NRP104 ahead of generic launches. NRP104 should be less susceptible to generic erosion because of differentiated safety, efficacy, abusability and overdose protection. Firm expects a rapid launch and transition for Shire to ensure that its patients are on NRP104, prior to generic Adderall XR launch.

Merrill continues to believe that NRP104 will be receive an approvable letter with minor label revisions or full approval by its October 6 PDUFA date.

Notablecalls: I think NRPH will trade up today. The only problem is that NRPH may gap up hard and then do nothing.

- Piper Jaffray is increasing our price target for Business Objects (NASDAQ:BOBJ) shares from $25 to $32 based on opinion that shares continue to trade at an attractive valuation and that the situation might not be as bad as they originally thought from an execution standpoint. While the firm feels it is unlikely the shares rapidly return to previous highs, they believe end-of-year seasonal strength in software and continued consolidation in the enterprise software sector could limit near-term downside risk.

BOBJ shares continue to trade below the peer group median multiples on a P/E, Ex-Cash P/E, EV/Sales, and FCF basis. Firm believes the current valuation, combined with the company's strong overall market position, healthy maintenance revenue streams, and takeout potential contribute to upside potential. Firm believes downside risk should be limited to $19, representing a P/E of approximately 11.2x FY07 EPS and 1.1x EV/'07 sales, with upside potential approaching our price target of $32.

Piper believes the recent M&A activity in the software space could also provide a floor. Firm notes they looked at recently announced and closed acquisitions in the software space (see Table 1) and calculated a median multiple of 3.6x trailing revenues for these deals. Assuming 3.6x trailing 12-month revenues leads to a value of approx. $43.12 per BOBJ share. Maintains Outperform.

Notablecalls: While the note makes a ton of sense I suspect the shares will have difficult time surpassing $27 level. Also, take a look at the high september put volume.

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