Advertisement
Markets

The Power of an Idea

I'd never heard of Noven, but it has the earmarks of a superior investment.

Doggone, Andrew Tanzer was right! Andrew is my colleague who came back from the Value Investing Congress in New York City a year ago and remarked that each time a presenter talked fervently about a stock, you could see attendees hunched over their BlackBerries, buying shares.

At the most recent such event I noticed the same phenomenon. At 9:40 a.m., when Lance Helfert, of West Coast Asset Management, began explaining the virtues of Noven Pharmaceuticals, its price stood at $14.86 a share. Scarcely an hour later, it was at $16.21. The power of a good idea is amazing, isn't it?

Good patchwork

I'd never heard of Noven (symbol NOVN), but it has many earmarks of a superior investment. It's a specialty-drug company whose forte is patches that adhere to the body and deliver medication. To borrow Helfert's phrase, this is "a beautiful business." Patches work with many compounds. Because a patch can extend the life of a drug and differentiate it from similar drugs, big drug companies partnering with Noven pay its development-and-marketing costs. And Noven's unique technology, patented until 2014, allows it to pack doses of drugs into far smaller patches than those of its competitors.

Advertisement - Article continues below

Noven's biggest product is Vivelle-Dot, a patch that delivers estrogen to menopausal women. In a $1.7-billion market, Vivelle-Dot has a small but growing share and, says Helfert, "we believe it is the best product." Vivelle-Dot is a partnership with drug giant Novartis, and in 2007 Noven's after-tax share of the profit was expected to be roughly $35 million. If you multiply that by ten, says Helfert, the business value of this one product is $350 million, or $14 per share.

Advertisement
Advertisement - Article continues below

He ascribes another $85 million in value to a second patch, Daytrana, which is used to treat attention-deficit hyperactivity disorder in children and is sold in partnership with Shire Pharmaceuticals. The two companies hope to launch a second ADHD patch in 2010 to deliver amphetamine.

Beyond all that, Noven is involved in multiple partnerships for drug products in development that it will not disclose for competitive reasons. The company believes its patches can deliver 35 compounds treating everything from pain and depression to obesity and motion sickness.

Advertisement - Article continues below

I'd expect shares of a company with these attributes to be priced at least in the mid $20s. And, in fact, Noven Pharma was in the $25 range until it announced last July the purchase of privately owned JDS Pharmaceuticals for $125 million in cash -- yup, Noven is flush with money. The deal gave Noven two non-patch drugs belonging to JDS (and numerous others in the pipeline), as well as its own sales force. For whatever reason -- maybe investors were spooked because Noven moved away from total reliance on patch-delivered drugs -- the stock slid steadily down to the $14 range, where it stood when those BlackBerries started to deliver buy orders.

Moments of truth

I'm telling you all this because, frankly, I get a rush from good investment ideas. I'll never forget the day in 2004 that I interviewed Matt Rose, head of Burlington Northern Santa Fe, and realized midway through that the railroad business had fundamentally changed for the better -- and that almost nobody knew it. I can't count the number of times this magazine has since recommended BNSF stock.

So kudos to my fellow attendees of the Value Investing Congress for being alert. And here's to your own investment success in 2008.

Advertisement
Advertisement

Most Popular

What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump issued an executive order to suspend the collection of Social Security payroll taxes. How much will it save you?
August 10, 2020
What a Payroll Tax Cut Would Mean for You
Tax Breaks

What a Payroll Tax Cut Would Mean for You

If Congress can't pass another stimulus bill, President Trump says he will initiate a payroll tax cut by executive order. How much would that save you…
August 8, 2020
Drawing Down Retirement Savings in a Pandemic
Coronavirus and Your Money

Drawing Down Retirement Savings in a Pandemic

Tapping the right accounts at the right time matters. Knowing how much a retiree can spend each year without running out of savings in old age is even…
August 7, 2020

Recommended

The 7 Types of Financial Procrastinators: Which One Are You?
investing

The 7 Types of Financial Procrastinators: Which One Are You?

The pursuit of investment perfection drives far too many people into getting nothing done, and that comes at a cost.
August 10, 2020
Invest Your Conscience with Ethical Trading Apps
investing

Invest Your Conscience with Ethical Trading Apps

From Betterment to Ellevest and Weathsimple, socially responsible investing apps are gaining steam. And those worried they’d have to sacrifice returns…
August 8, 2020
Drawing Down Retirement Savings in a Pandemic
Coronavirus and Your Money

Drawing Down Retirement Savings in a Pandemic

Tapping the right accounts at the right time matters. Knowing how much a retiree can spend each year without running out of savings in old age is even…
August 7, 2020
The Pros' Top 5 Industrial Stocks
investing

The Pros' Top 5 Industrial Stocks

The industrial sector is lagging badly this year, but anytime there's carnage, there is also opportunity, analysts say.
August 7, 2020