Fresenius Kabi Pharmaceuticals (APCVZ)

[GekkoStarr]

"A Hidden Gem in Penny Stock $APCVZ?"

Fresh article out:

Before writing anything, I very rarely, if ever, write about a penny security (under $1). However, I found APCVZ by running a “dividend + gross margin” scan which brought up a security with potential for a huge score.

Full Disclosure: I started buying APCVZ at $.09 to $.1079. So I OWN THIS SECURITY at an avg of 10 cents a share.

The most important point is that each share of APCVZ is a CVR (Contingent Value Right) and does not reflect equity ownership in the company and has a limited upside of $6. It’s similar to an option because of its expiration date; Shortly after FKP Holdings files its Annual Report on Form 10-K for the year ended December 31, 2010 the CVRs will be deregistered and delisted and cease trading on NASDAQ. The owner of the CVR on that day will be the final owner of record and will receive the payout should the company hit the target to trigger a payout. Therefore, the maximum upside for APCVZ is anywhere between $0 and $6. Each CVR represents the right to receive a pro rata portion of an amount equal to 2.5 times the amount by which cumulative adjusted EBITDA of APP and FKP Holdings and their subsidiaries on a consolidated basis, exceeds $1.267 billion for the three years ending December 31, 2010. Do some homework and pull up their most recent 10Q and you’ll have an idea of the trajectory of earnings. I think the odds favor a payout between $2 and $4.

Digging deeper, going back to the 2008 merger with APP, the potential for a security not yet recognized by the analyst community can often be tremendous. I’m sure many hedge funds sat on it for a thermal short betting it won’t meet it’s milestone, but now this looks like the beginning of a move from 10 cents to $3. Whether it hits its milestone and triggers a $6 payout is not relevant. I’m taking profits well before the security stops trading. Each CVR represents the right to receive a pro rata portion of an amount equal to 2.5 times the amount by which cumulative Adjusted EBITDA of APP Pharmaceuticals (Fresenius Kabi Pharmaceuticals Holding, Inc.), and its subsidiaries on a consolidated basis exceed $1.267 billion for the three years ending December 31, 2010. The maximum payout is $6 BUT it can be an amount less than that as well according to the preceding ratio. The payout is June 10, if there’ s a payout at all. I’m not a pig because I don’t want to get slaughtered. I’m a trader and just want to make money, so if this trades to $3 on the back of a squeeze or sudden institutional accumulation, I’ll gladly bank the profits. The actual equity shares trade under the symbol APPX.

There are no analysts covering the security, although there are hundreds covering Teva, which is marketing a generic version of an oncology drug from Eli Lilly, and their marketing partner is APCVZ! So I knew it was a matter of time for analysts to pick up on this, especially those that cover Teva. Then, just as I expected, on Feb. 15th, one tiny research firm picked up on the security and cited the same reason (http://www.stockmarketsreview.com/news/104844/ ) that got me interested to begin with. A clause in the 2008 merger entitles shareholders a performance dividend of $6 per share in the present quarter. At first, I thought this was b.s. A fake press release to run a pump and dump. But no one was pumping. Moreover, the largest generic drug maker in the world, Teva, was giving APCVZ a 180 day exclusivity to market the drug, a generic version of Eli Lilly’s Cancer Drug “Gemzar”, which for Eli Lilly has been a blockbuster.

This was old news that I found on Reuters from January 26th. The announcement shot Teva up 5% but only created a huge volume spike in our little penny security with no movement in price. Then on Feb. 8th, the security doubled from 5 cents to 10 cents. Held the move for several days consolidating into a tight wedge and breaking out on Feb. 16th. I’m not one to rely on technical analysis, especially when it comes to penny securities, but in this particular case, I haven’t seen a textbook accumulation pattern shifting into a mark-up phase as perfectly as little old APCVZ.

Setting aside the technical picture, which I don’t depend on, I dug deeper and learned the company has a tremendous pipeline of products. 30 drugs are under review by the FDA with another 70 under development for oncology. I kept scratching my head wondering, what is the deal here? A $6 dividend, 100 products at various stages, a partnership with Teva to produce a knock-off of Gemzar, with a 180 day exclusivity! So at a dime a share, this was a no brainer. 50,000 would cost only $5k, so the maximum downside was a negligible $5k while the upside could be $300k. Those are my kind of odds! The security jumped over the past 2 days, so I figured it was time to share it. The float is 145mm shares, so liquidity is not an issue on this one, unlike most penny stocks.
Factoring in the partnership with Teva and exclusivity rights, combined with very little analyst coverage, I felt it was a jewel about to be discovered. The security has clearly entered its’ mark-up phase after 15 months of accumulation. The bet seems to be reversing from them missing their milestone to actually having a clear shot at hitting it. I wish I had discovered it at 5 cents but even at a dime, this is a pure “swing for the fences” trade with little risk. It traded as high as 15 cents on Thursday and closed at 12 cents and 13 cents in extended trading. The volume pickup on this security is a huge tell-tale sign. Liquidity begets liquidity which begets marking up of a security. Forgetting about the alleged $6 cap, if APCVZ really gets a 180 day window to market the generic version of Gemzar for Teva, which has been confirmed by Teva, the security is easily going to trade above $3 and might even hit the $6 payout. The short squeeze might be enough to get me out and I won’t be greedy enough to wait for it to stop trading to see if I get $6. I’ll take half that if it gets there.

I then looked in an entirely different direction to see if I can find more answers to my questions.

I went to Eli Lilly, the manufacturer of Gemzar, which produced almost $800mm in sales for them last year, to see if the discount was due to Eli Lilly trying to prevent Teva from launching a generic. Bingo. Lilly has its own company that sells a generic version of the drug, which is the exact same drug but under its chemical name. There is one more company also selling a generic version. But Teva being the worlds largest seller of generic drugs makes this a a different case. Cancer patients have been deprived of this life extending drug for years because of its extremely expensive price tag. A single vile of this drug costs over $800. 6 viles cost almost $5k! APCVZ, focuses only on injectable oncology drugs. Now everything started to make sense.

Gemzar 1gm Solution is an anti-metabolite used to treat certain types of cancer including pancreatic cancer, non-small cell lung cancer, breast cancer, or ovarian cancer. Gemzar 1gm Solution may be used in combination with other cancer medicines to treat these cancers. I was appalled to see Eli Lilly’s numerous attempts to keep this late stage life extending drug out of reach of most patients at these prices. Gemzar is delivered when breast cancer has metastasized, or advanced recurring ovarian cancer requires late-state chemo. So knowing the patients that will benefit most from this drug will be able to get it at much cheaper prices, and APCVZ being the one to sell it to them for the first 180 days exclusively, well, the rest is history. Tthe first 180 days are going to be huge then sales will taper off. Whenever an expensive brand goes generic, all inventory of the brand that’s in the pipeline is cleared out while hospitals and pharmacies wait for the generic to arrive. So there is pent up demand during the first 180 days as insurance companies stop paying for the brand in anticipation for a much cheaper generic.

There you have it. Don’t forget where you heard it first.
source: http://investmentcapitalist.com/2011/02/apcvz-penny-stock/