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Actelion and Kraig Biocraft
MALCOLM BERKO
Taking Stock
Published: February 14, 2017
Dear Mr. Berko: What do you think of Actelion Pharmaceuticals? I bought 400 shares at $42 last June, and they're now worth $56 each. Would you consider this a short-term stock or a long-term hold?
My golf buddy just bought 30,000 shares of Kraig Biocraft Laboratories at a nickel a share. He says the company has a U.S. government contract to make special silk parachutes. Would this be a good gamble for me? -- PW, Fort Lauderdale, Fla.
Dear PW: You should be pleased. Actelion (ALIOY-$55.65) is among the very few biopharmaceutical stocks that pay a dividend. This $2.3 billion Swiss drugmaker is one of the few hundred fully integrated biopharmaceuticals trading on American and European exchanges but the only one that may be in serious buyout talks with Johnson & Johnson (JNJ-$112).
During the past two years, there have been monthly takeover rumors, but none has come to fruition. However, Wall Street seems to think that JNJ and ALIOY will pull the trigger together, with price talk in the high $60s or low $70s. And because ALIOY's patents, research skills and impressive drug portfolio would be a great fit for JNJ, the price could be even higher. Seeing as ALIOY's management is also talking with Novartis, Sanofi, Allergan and Novo Nordisk, we may see a fierce bidding war.
This remarkably productive company has profit margins of 29.4 percent, return on assets of 23.9 percent and return on equity of 50.8 percent. ALIOY's quarterly revenue growth is 18.8 percent. There's $407 million in cash. Levered free cash flow is $507 million. There's zero debt. And only 108 million shares are outstanding. ALIOY is among the few successful biopharmaceutical companies that have enjoyed superlative success with innovative technologies. Its remarkable 796-person research staff develops and commercializes drugs for unmet medical needs.
Tracleer is an important endothelin receptor antagonist for pulmonary arterial hypertension. Opsumit is an oral antagonist for PAH. And Ventavis is an inhaler causing blood vessels to dilate. Then there are Zavesca, Veletri, Valchlor and Uptravi, to name other specialty PAH drugs in ALIOY's fecund portfolio. Actelion is recognized for its global leadership in PAH research and has an exceptional marketing and sales force of 1,432 professionals. And if you visit the corporate offices near Basel, Switzerland, the company's human resources people will give you a cup of their splendid Swiss coffee with a teeny silver plate of petite chocolates. Dress appropriately; no flip-flops or muumuus are permitted.
Though its 108 million shares outstanding have run up 30 percent since mid-November, I think ALIOY could still be a profitable short-term trade. I'd only buy this as a speculation on a potential buyout because recent price increases make ALIOY unattractive for a value investment.
I think the gene pool for stockbrokers in South Florida needs a lot more chlorine. There's a special class of bent brokers in your city who gargle with battery acid, do handstands on hot coals, drink liquid nitrogen and pierce their tongues with toothpicks for sport. I received six letters this week from your area, and it seems as if other financial muggers are recommending that piece of rubbish called Kraig Biocraft Laboratories (KBLB-$0.07). KBLB, home-ported in Ann Arbor, Michigan, has two employees, $19,000 in revenues, zero profits, over 700 million shares outstanding, $360,000 in cash, $50,000 in debt and a negative book value.
KBLB's claim to fame is a type of genetically engineered spider silk (the company calls it Dragon Silk), which is supposed to have significant commercial and military uses. Testing of this recombinant silk shows it to be many times stronger than Kevlar, and it weighs 90 percent less per square meter. In July, KBLB received a $100,000 Department of Defense contract (with $900,000 more if successful) to produce parachutes and bulletproof vests. With the announcement of that contract, South Florida's penny stock brokers had a ball, and KBLB ran up from 2 cents to 10 cents in three weeks. A month later, it flopped back to 4 cents. I wouldn't touch KBLB with a lightning rod. But in my research, I discovered that there's one strand of corn silk for each kernel on an ear of corn.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.