Another Positive.....No R & D expensesPDP acquires already approved drugs that are too small for the larger pharmas to bother with.....typically, anything with potential sales of $25 million or less.
It spruces these up with perhaps no or only minor changes in the molecular structure , repackages them and resumes their commercial sale.
Carefully chosen, this is a very effective way to high gross margins and robust profitability.
Very little R & D is required .
Hence free cash flows ( unencumbered by other costs ) go directly to the cash position.
Gross margins are currently about 67% of net sales.
A few trial calculations show that PDQ will become free cash flow positive at around $6 million in annual sales.
2015 sales were $3.8 million, so we shall hit the $6 million run rate at some point this year.
That means entry to free cash flows and cash accretion.
In the meantime, with $11 to $12 million in cash, they can pick off one or two more drugs in order to accelerate sales.
Valuation wise, junior pharmas with a significant growth profile and a solid balance sheet.....two metrics that PDP excels in,... Trade at 9-11 times annual sales.
With $20 million in sales outlined for the next 2-3 years , upside here is a very robust multiple of the current share price while our cash and growing drug sales limits the downside..