Sunday, January 07, 2007

January performance update

Click on the image below to see a table of my performance to date.

ARNA and AMLN remain the two negative open positions but I still think 2007 will be a good year for both of these stocks.

CELG has outpaced my expectations but I am still holding on to covered calls and I think the upside is limited for this stock in 2007. January 60 calls should make up slightly for the January 50 calls I had sold earlier.

I have added VRTX and CEPH based on valuations. I have also sold some VRTX April $20 puts which are way out of the money but have some value due to historical volatility of VRTX.

Of the non-biotech stocks. I have closed the ADBE (6%) and COH (25%) . I just don't like the chart of ADBE which looks like a resistance is being formed. Coach has had a nice run during the holidays but I am closing this great retailer. The rest of my non-biotech stocks all have international exposure and should withstand the expected upcoming slowing in the US economy. I am still holding a large cash position and expecting a correction in first half of 2007.


Cephalon Pharmaceuticals (CEPH) is a rare biopharmaceutical value stock in 2007

Cephalon Pharmaceuticals (CEPH)

In December biopharmaceutical company Cephalon Inc. made the announcement that it has reduced its debt levels by exchanging a combination of cash and stock for $337 million in convertible notes. Cephalon exchanged $161.6 million of its zero coupon convertible subordinated notes due June 2008 and $175.4 million of similar notes due June 2010 for $101.6 million in cash payments and 4.3 million common shares.
The company expects to book a related $20.8 million charge in its fourth quarter.

As a results of the transactions, Cephalon reduced its 2007 outlook for basic adjusted income to $4.15 to $4.25 per share.

The company said its 2006 earnings and sales outlook remain unchanged, as does its 2007 sales forecast. In November, Cephalon projected 2006 sales of $1.66 billion to $1.68 billion and basic adjusted income of $5.10 to $5.20 per share. Sales in 2007 should range from $1.68 billion to $1.73 billion.

Also, Cephalon announced in December that FDA would likely delay a final approval decision on its drug Nuvigil for excessive sleepiness while the agency continues to investigate a case of a potentially serious skin rash seen with a related medicine. The company however reiterated it's sales forecast for 2007 and do not expect a significant effect from this delay since they expected to have a "modest" launch of Nuvigil which is expected to replace Provigil once it's patent expires.

Cephalon has done a great job of managing its product life cycle by developing Nuvigil and launching it before Provigil patent expires.

CEPH stock is currently at $69.75 and trading at about 15X 2007 expected earnings and well off of it's 52 week high of $82.92. I consider this level a great value and opening a position at these levels. The chart to the right shows a down side risk to $55 where the stock would be trading at Dirt Cheap prices. I think given the relatively safe earnings prediction as well as the new capital structure the stock has little risk of down side move given the overall sector does not take a major hit.