Market Overview

PropThink: SciClone Reportedly Exploring Strategic Options


By David Moskowitz

SciClone Pharmaceuticals (NASDAQ: SCLN) started the day strong, as the company is being cited by dealReporter as exploring strategic options. According to sources, the publication is noting that the company may be exploring a potential sale to private equity firms, and potentially strategic buyers like Celgene (NASDAQ: CELG), Bristol-Myers (NYSE: BMY), Gilead (NASDAQ: GILD), and Novartis (NYSE: NVS). Shares of SCLN are extraordinarily cheap, trading at a big discount to U.S. specialty pharmaceutical companies, and even a discount to Chinese drug companies on an EV/2012 Sales basis. The company is profitable, has strong cash flow, and as a result has started buying back its own shares. In addition to being attractive from a financial standpoint, SCLN has built a strong brand and drug distribution engine in China and throughout Asia, which could be important for larger pharmaceutical companies, like those named above, to leverage with regard to their product portfolios.

Earlier this week, the company noted that the long-anticipated price decrease for lead product Zadaxin from the Chinese government will have a lower than anticipated impact on earnings, therefore, we continue to expect that SCLN is likely to raise its financial guidance when it reports 3Q 2012 earnings (see our prior story). Expect SCLN shares to remain strong, with potential that the Cowen analyst, who downgraded the shares in advance of the price decrease, returns to the table with an upgrade now that the "negative event" has turned into a positive catalyst. More importantly, SCLN's cheap valuation and strong franchise is being recognized by both financial and strategic buyers. The average analyst price target for SciClone is $7.75 based on fundamentals, and a take-out could be at a premium to that level.

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