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No. of Recommendations: 3
Well, since no one ran with the valuation, I'll take a stab (please note, I'm not so good at this so do your own DD).

Current Share Price: $10.75
52 Week Range: 7.94 - 15.16
Market Cap: 752 M
Cash Per Share*: $8.76
CAPS rating: 5 stars
CAPShot rating: 11 (misses on industry rating)

*presented in Nov 25th Fool article http://www.fool.com/investing/general/2008/11/25/the-richest...

Using the Fool's DCF Calculator, the company looks to be a steal. Here are the inputs:
Discount Rate: 15% (I made up)
Free Cash Flow: 95.353 M (from the annual report)
Assumed FCF for next 5 years: 24.5% (analyst estimate from Yahoo)
Assumed FCF for years 6-10: 10% (I guessed)
Assumed Earnings Growth after 10 years: 3% (I guessed)
Current Stock Price: 10.75
Shares Outstanding: 69.98 M
Debt: 250 M

So, you get an intrinsic value of 27.94 per share, with a 61.5% margin of safety.

First thought - 24.5%! are the analysts nuts?

Well, maybe not. VPHM took in $204 M this year in sales and their net income was $95 M. They have a new drug on the market this year, which should increase earnings and they have a two drugs exciting the research phase (the one on the market, and one soon to be reviewed). That will decrease expenses. Analysts expect 24.5% growth, which would mean a net income of around $230 M. That's not quite so crazy considering the spending declines and modest sales growth.

But, I'm still worried about the pipeline. What happens if we assume there is no growth after that? Then, according to the DCF tool, the intrinsic value is 18.64 per share with a margin of safety of 42.3%.

That's still pretty good, but is it worth it?

What we're looking at here is a company that is maturing but not really growing. Growth will have to rely on the sales force, which is probably not the biotech company's strength (though they partner with Lilly).

Also, where is the potential for an upside surprise? There are no drugs in the pipeline that could come to market in the foreseeable future, so we're taking on the risk of a drug company (Vioxx anyone?) with out the potential reward.

I'm left wondering, are there other drug companies out there with a similar margin of safety but a better potential for growth? Probably, says I!

Dave
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