Today is Watchlist Wednesday, so I’m discussing three companies that have crossed my radar in the past week — and at what point I may consider taking action on these calls with my own money. Keep in mind that these aren’t concrete buy or sell recommendations, nor do I guarantee I’ll take action on the companies being discussed. What I can promise is that you can follow my real-life transactions through my profile and that I, like everyone else here at The Motley Fool, will continue to hold the integrity of our disclosure policy in the highest regard.
Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR)
Insane! That might be the best word to describe the valuation here and the reason I feel investors would be wise to add Aegerion to their Watchlist as a potential short-sale candidate.
On the bright side, Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR) reported second-quarter sales for Juxtapid — its pill designed to lower LDL-cholesterol (the bad type) for a rare disease known as homozygous familial hypercholesterolemia – that blew past estimates and forward guidance. The company reported $6.5 million in second-quarter revenue and basically doubled its full-year sales forecast to $30 million to $35 million from a prior range of $15 million to $25 million. The Street had expected just $31.7 million in sales this year. Aegerion’s Juxtapid also has a one-up on ease-of-use over Isis Pharmaceuticals, Inc. (NASDAQ:ISIS) and Sanofi SA (ADR) (NYSE:SNY)‘s competing HoFH drug, Kynamro, which is given intravenously but was also recently approved by the Food and Drug Administration.
Some of this boost is attributable to Juxtapid’s orphan drug pricing which entails $295,000 in costs per year in treatment. Kynamro, by comparison, is priced more than $110,000 lower on an annual basis. Obviously cost isn’t deterring physicians from prescribing the drug. But, ultimately we’re talking about a single drug with a limited treatment audience here that has a considerably cheaper and similarly effective competitor also floating out there. Even if Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR) were to hit the high-end of its projections at $35 million in revenue, it would be valued at close to 70 times sales. Even if its revenue doubles next year that only brings its price-to-sales ratio down to 35!
Shareholders continue to bid up a company that’s losing money and likely won’t turn a profit until well into 2014. Add on competition from ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS) and I feel you have all the makings of a fantastic short-sale opportunity here.
Mosaic Co (NYSE:MOS)
Following yesterday’s bulldozing of the fertilizer sector it’s starting to look like potash companies (a type of fertilizer) are the ones in need of help in the growth department. Mosaic, and many potash players, large and small, were taken for a wild ride on news that Russia’s Uralkali is no longer planning to hold back production to keep prices potash prices up and will sell its potash at spot market prices, likely sending potash prices and margins much lower.
The news can be crippling for companies that deal primarily with potash, like Intrepid Potash, Inc. (NYSE:IPI), which generated more than 80% of its gross revenue from potash in the first-quarter ($82.7 million of $99.3 million). Being a smaller company to begin with, Intrepid Potash has less versatility and could really see its margins pinched.
Mosaic Co (NYSE:MOS), on the other hand, was hammered nearly as hard as Intrepid Potash, Inc. (NYSE:IPI), but has multiple factors working in its favor. For starters, it received $1.7 billion of its $2.7 billion in net sales in its most recent quarter from phosphates – the remaining $1 billion came from potash. While Mosaic may see some margin contraction in its potash segment, it’s not Mosaic’s primary revenue generator.
Also, with more diversity and better cash flow comes the ability for Mosaic Co (NYSE:MOS) to be more flexible than its smaller peers. Mosaic has the liberty of adjusting its production mix as needed to maximize margins and reduce expenses. Plus, after yesterday’s thumping, shareholders are now receiving a 2.3% yield that doubled in 2013.
