Monday, December 04, 2006

Calls of Note Part 1

- Merrill Lynch notes that Alpharma (NYSE:ALO) will host an analyst meeting on December 13th in NYC, during which new CEO Dean Mitchell (started 7/1) will present for the first time the results of the company's recent strategic review and release '07 guidance. Given the stock's discount relative to the group ('07E EV/EBITDA of 6x vs. 11x), they believe the shares could bounce 10-15% if management announces actions that could enhance shareholder value.

Firm remains concerned that the growth of Kadian, ALO's only branded product (for pain), has moderated, and that a patent challenge is possible at any time. While ALO could launch the next-generation Kadian NT before a generic hit, the pain space will become increasingly competitive in the coming years. However, they note that concerns surrounding Kadian are well understood by investors. Looking ahead, management appears to be very focused on acquiring a product to better leverage the existing sales force (in pain or related area).

ALO's two other businesses, Animal Health (53% of '06E sales, primarily medicated feed additives) and Active Pharmaceutical Ingredients (26% of sales), are difficult to model and tend to be viewed by investors as commodity-like, lower growth businesses subject to margin swings. As a result, management may decide to provide more tangible targets and drivers for these businesses, which could potentially lead to improved investor perception. It is also possible that management could sell or spin one or both of these businesses, or seek other alternatives.

Notablecalls: Expect to see buy interest in ALO following the call. Somewhat similar to ML's call on PRX on Oct 12 (see archives).

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