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    Stock Alert for ISTA Pharmaceuticals Inc. (ISTA)

    ISTA Pharmaceuticals Inc. (ISTA), a pharmaceutical company, engages in the discovery, development, and marketing of remedies for diseases and conditions of the eye in the United States.  ISTA currently markets four products, including treatments for ocular inflammation and pain post-cataract surgery, glaucoma and ocular itching associated with allergic conjunctivitis. The Company’s development pipeline contains additional candidates in various stages of development to treat dry eye, ocular inflammation and pain, and nasal allergies. ISTA generated revenues of $156.5 million in 2010.

    Share Statistics (16-Dec-11) FY2009 FY2010 % Chg Q32010 Q32011 % Chg
    Symbol ISTA Revenue, $Mn 110.65 156.53 41.5% 42.02 41.39 -1.5%
    Current price $6.68 Gross marg. 75.3% 76.0% 0.9% 77.0% 75.5% 1.9%
    52wk Range: $2.88-$11.39 Oper. Margin 6.6% 9.4%
    Avg Vol (3m): 198,919 Net margin -52.2% -3.4% 93.5% -56.0% 74.0% -232.1%
    Market Cap. 277.23M
    Shares Outstanding 41.50M EPS, $ -1.74 -0.16 -90.8% -0.70 0.64 -191.4%

    Source:, SEC Filings.

    Investment Highlights

    Shares of ISTA ticked higher on Friday as Valeant Pharmaceuticals International Inc. (NYSE: VRX) made a bid to buy the Company.  Shares added $2.79, or 71.7%, to close at $6.68 , continuing gains of the previous two days. Over 5.71 million shares traded hands during the session, topping the 10-day average of 143.70 K.  ISTA is currently above its 50-day moving average of $4.02 and above its 200-day moving average of $5.21.

    Shares of ISTA have gained 69.5% in the last five days; 65.4% in the last 30 days; and 45.9% year-to-date.

    Canadian-based Valeant Pharmaceuticals made a proposal to ISTA’s board to acquire the Company for $6.50 per share in cash, representing a premium of about 67% over ISTA’s closing price of $3.89 on December 15, 2011.  The proposed transaction has a total equity value of approximately $314 million on a fully diluted basis.  In addition, ISTA has net debt of approximately $13 million , bringing the total enterprise value to approximately $327 million.

    Valeant first approached ISTA in October.  After ISTA refused to enter into a customary confidentiality agreement with the company, Valeant made a formal written proposal to ISTA’s management on November 23 , 2011.  ISTA responded to this letter on December 2, 2011 , stating that it needed more time to review Valeant’s proposal.  Valeant reaffirmed its proposal to ISTA on December 12, 2011, in writing, and ISTA rejected this proposal on December 14 , 2011.

    Following Valeant’s press release, ISTA confirmed the rejection of an unsolicited, non-binding proposal from Valeant. The Company said in a statement that the existing offer “grossly inadequate and not in the best interests of Ista shareholders.” However, the Company said that because Valeant has attempted to revive its previously rejected proposal, ISTA’s board will commence a review of all strategic options available to ISTA in the context of its fiduciary responsibilities and the Company’s strategic plans.


    Financial Summary

    ISTA generated net revenues of $41.4 million for the third quarter of 2011, up 12% from the previous quarter, and 1% down from the same period last year.  The Company attributed the year-over-year decline to a drop in price per unit sold for the bromfenac franchise, which included primarily XIBROM in 2010 and primarily BROMDAY in 2011, and higher managed care and government rebates.

    Under generally accepted accounting principles in the United States (GAAP), net income for the third quarter ended September 30, 2011, was $30.6 million, or $0.64 per share based on 47.9 million fully diluted shares, impacted primarily by a non-cash warrant valuation gain of $28.3 million resulting from a decrease in the Company’s stock price in the quarter. On an adjusted cash basis, ISTA had net income of $4.1 million, or $0.09 per share based on 47.9 million fully diluted shares.

    At September 30, 2011, ISTA had total cash of $51.9 million, which included $24 million under ISTA’s revolving line of credit with Silicon Valley Bank and $33.5 million in reserved royalties for BROMDAY and XIBROM. From available cash in the quarter, the Company paid $21.5 million on its $65 million debt facility, the first of three annual principal payments.

    For the full-year 2011, the Company expects to report net revenues in the range of $160 million to $175 million. Non-GAAP adjusted cash net income is expected to be at least $5 million.  Based on 50 million fully diluted shares, non-GAAP adjusted cash earnings are expected to be at least $0.10 per diluted share..


    Financial Strength (16-Dec-2011)




    S&P 500

    Quick Ratio (MRQ) 0.90 1.57 2.07 0.77
    Current Ratio (MRQ) 0.94 2.04 2.66 1.14
    LT Debt to Equity (MRQ) 31.74 35.12 106.84
    Total Debt to Equity (MRQ) 35.12 46.86 143.87
    Interest Coverage (TTM) 2.08 3.20 1.42 26.29

    Source:, SEC Filings.

    Technical Analysis


    ISTA is above the upper Bollinger Band, implying that it is currently extended from its recent trend. Be aware, however, that a cross outside of the Bollinger Bands can sometimes be a signal of trend strength and not, necessarily, trend reversal.

    Comparative Analysis

    Company Name Ticker Price per Mrkt. Cap. P/E P/S
    Dec16-2011 symbol Share, $ $ Mn 2011 2012 2011 2012
    Novartis AG NVS 56.11 133.87B n/a n/a 2.27 2.22
    Allergan Inc. AGN 83.66 25.52B 22.98 19.82 4.71 4.33
    Drug Manufacturers – Other Median       21.35 n/a 3.39 n/a
    ISTA Pharmaceuticals Inc. ISTA 6.68 277.23M n/a n/a 1.71 1.42

    Source: Thomson Financial

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