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My take is that KG is in great shape as a continuing and growing cash machine.

Their general business approach is to find companies who are willing to sell franchises in specific drugs and then KG takes these and applies considerable marketing power to accelerate the sales.

As a result of the recent Elan transaction, purchasing Sonata and Skelaxin, they spent a huge amount of cash, picked up about 400 new employees (sales), and are eating these costs. In addition, they seem to prefer to accelerate goodwill writeoffs early in the game which makes the earnings look downright awful.

I like the management. Brothers founded this, the current brother in charge has a law and pharmacy degree. Pretty good crew helping him out. That they do not usually have to walk their stuff through FDA approvals is a big plus. This is because they like to buy drugs that have been through this already.

TMFJacobs(?) wrote about the company early this year which got me started on it.

It has been a disappointing year but I plan to hold a pretty substantial position for a few years at least.

I think once the SEC thing is behind they should do very well medium term (1-3 years).

Phil [long KG]
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