Wednesday, December 06, 2006

Calls of Note Part 3

- TWP reiterates Overweight rating on Phase Forward (NASDAQ:PFWD). Firm continues to believe that Phase Forward will benefit from the increasing utilization of electronic data capture and other technologies by pharmaceutical manufacturers and biotech companies. In their view, PFWD's 3Q06 results demonstrated continued top-line momentum and margin improvement as more trials are conducted with the company's InForm product.

Last month, the company reported 3Q06 results above both our expectations and consensus. Revenues were above expectations in the quarter but the real leverage in the model came to light as the company reported operating margins that were 340bp above 3Q05 levels. The company's move toward a high-recurring, subscription-based model has enabled PFWD to leverage its existing infrastructure. The company has begun recognizing revenue from its Merck contract signed in early 2006 and should benefit from a recent large agreement with Novo Nordisk in 2007. The company has virtually no exposure to Pfizer.

TWP maintains their thesis that PFWD will be a significant beneficiary as manufacturers increase utilization of EDC technologies over the long run. The company has certainly outdistanced itself from most smaller competitors and, in their view, has a superior EDC application to Oracle's integrated application (database and EDC). At current levels, PFWD shares trade below firm's current fair value range of $16 to $18.

Notablecalls: Not a trading call but I suspect this one may be a keeper for the L-T investor. The co offers just what big pharmas currently need.

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