Editor's Note

Akorn ran into some trouble in 2015 and had to restate their financials. That is always the tripwire that sends stocks plummeting to the bottom. Akorn is rising out of those ashes and has a promising future.


AKRX - Akorn - Company Profile

Akorn develops, manufactures and markets generic and branded prescription pharmaceuticals as well as animal and OTC consumer health products in the USA and internationally. The company was founded in 1971.

The accounting issues in 2015 that caused them to restate their earnings are almost over. They are going to file their 10K by May 9th and that will catch them up with the SEC and remove any lingering uncertainty.

This is not a small company although shares declined -50% after the accounting issues started. They are expected to post $1.93 in earnings for 2015 on $985 million in revenues. Morningstar's 2016 forecast is $2.15 and $1.07 billion.

The key here is that Akorn has 87 generic drug applications filed with the FDA. More than 50 of them have received complete response letters. Akorn expects more than half of the drugs that have letters will be approved over the next 12 months.

Akorn is a complex drug manufacturer. Most generic companies do the easy drugs because they are cheaper to make. Akorn likes the complex drugs because there is a larger barrier to entry for other companies and they retain their higher prices for longer. They also develop generic drugs that require approval after small clinical trials. The trials also inflate the cost of entry into the market and keeps other generic manufacturers away.

Interesting article by Morningstar

I would not be surprised to see someone acquire Akorn once the financial problems are resolved. Their large suite of existing drugs plus the 87 applications filed and more than 50 planning to be filed means this company will be very profitable in the years ahead.

This is a short-term play. I do not want to hold over the 10K filing on May 9th just in case there is another unforeseen problem. Other investors are taking a position with expectations that 10K will solve their problems and the stock will spike. With the stock at $28 today and rising steadily, I want to buy it and try to capture $3-$4 before the 9th. Once the 10K has been filed we will reevaluate for a longer term position.

Buy AKRX shares, initial stop loss $26.45.

No options recommended because of wide spreads and short duration.


No New Bearish Plays