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When investing in a company it is always important to look at the amount of money that the company is making and the amount of cash reserves that a company has. One stock that really exemplifies the concept of having very strong cash flows and also having a large cash reserve is Aspreva Pharmaceuticals Corporation. Currently Aspreva has around 260 million dollars in cash with less than 500 thousands dollars in debt. In order to understand what makes Aspreva so unique and why I view it as a good investment one needs to understand what they do and how they make their money. Aspreva develops and market new drugs that are targeted at treating rare autoimmune diseases such as lupus nephritis and pemphigus vulgaris. The main drug that Aspreva is currently developing to treat these diseases is CellCept. CellCept is a drug that that is currently being used in organ transplants in order to make sure the new organs are not rejected by the patient. Aspreva currently has a contract with Roche Pharmaceuticals in which Roche produces and then distributes Cellcept. In accordance with their current contract Roche receives the first 134 million Swiss Francs of revenues. The revenue is the split fifty percent between Roche and ASPV once this number it surpassed. By implementing this business model Aspreva is able to maintain its focus on developing new drugs while Roche does the legwork of manufacturing and marketing of the CellCept drug. Aspreva’s main source of cash flow at this point is its contract that it has with Roche to manufacture and distribute CellCept. Since the Roche contract is Aspreva’s sole source of income it is important to examine how long this arrangement will be profitable. The patents on CellCept do not expire until late 2009 or early 2010 in Aspreva’s main markets. This means that generics will not be available until late 2009, so Aspreva’s current source of income is relatively safe for at least the next two years. As stated earlier, Aspreva has a strong balance sheet with over 7 dollars a share in cash at this moment. This is not even considering the amount of money that ASPV is set to make over the next two years from the CellCept drug with their contract with Roche. In order to continue to be profitable Aspreva will need to look at either expanding the current uses for CellCept or look to make an acquisition. Since CellCept is already FDA approved Aspreva can skip the first two phases of FDA testing which gives the company a huge advantage in expanding the use of CellCept. If Aspreva does not make an acquisition and the company is not able to expand the uses of CellCept into other area Aspreva will face fierce competition from generics in 2009. This is the main risk that Aspreva faces in the near future. With the current levels of cash on hand and the levels of cash that will be coming in over the next two years ASPV presents a unique company in today’s market that lets the investor buy into a true value play. This fact coupled with the prospects of growth from the other possible uses of CellCept that Aspreva is currently researching we have a stock that is severely undervalued and still have great growth prospects going into the future. |
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