Good Entry Point for Sciele

Sciele Pharma, Inc. (SCRX) is a specialty pharmaceutical company engaged in the sale of prescription products for the treatment of cardiovascular, metabolic, obstetrical and gynecological, and pediatric and gastroenterological conditions and disorders. The company's broad focus and deep product pipeline offer substantial growth opportunities over the next several years.

Moreover, Sciele received a boost in January when the FDA approved the company's new Sular formulation. This removed a significant overhang from the stock. Sciele started shipping and promoting the new Sular from late March the company intends to switch users to the new formulation prior to the potential entry of generic Sular in June 2008.

We believe the current share price represents an attractive entry point for long-term investors and we rate the stock a Buy. We upgraded the name following the FDA approval of the new Sular formulation in January 2008. Sciele shares were down significantly during the last few months of 2007 due to concerns regarding the approvability of the product.

Based on our long-term earnings model, Sciele offers a compelling valuation. The stock trades at 8.4x 2008 earnings per share (EPS) of $2.29, at a significant discount to the specialty pharmaceutical peer group. Yet, Sciele offers considerably better long-term growth. Based on our long-term earnings model, we believe the company can deliver 18% top-line and approximately 24% bottom-line CAGR through 2010. There could be significant upside to our estimates as our model does not include contributions from potential new product launches.

In March 2008, Sciele increased its revenue and earnings guidance for 2008 (which includes revenue contributions from the new Sular formulation), following the acquisition of the Twinject injector and the expansion of its agreement with Sanofi-Aventis (SNY - Analyst Report) for Allegra. Revenues are now expected in the range of $447 million - $470 million, and earnings per share are expected to increase to $1.99-$2.11 per share. 

Arpita Dutt, CA, contributed to this report.

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