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Zalicus Proves It’s the Best ’11 Stock

Leader on's 10 best stocks list is up 36% YTD

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Best Stocks to Buy for 2011Zalicus (NASDAQ: ZLCS), my top pick for an leading biotechnology stock breakout in 2011, is proving it is indeed the best stock to buy. Zalicus reported December fourth quarter results on March 9, and biotech stock ZLCS has built on its already impressive performance so far in 2011 with even bigger profits for shareholders.

On revenues of $1.3 million, leading biotech company Zalicus lost 13 cents per share. The lone analyst publishing on the biotechnology stock expected $2.1 million and a 12 cent loss. They burned $2.1 million in cash during the quarter, and ended the period with $46.5 million in cash and equivalents.

As is usual with development-stage biotech companies, aside from cash levels and cash burn, the accounting numbers were less important than management’s program update. Zalicus has one product on the market, Exalgo for chronic pain, marketed by a subsidiary of Covidien (NYSE: COV). When Covidien reported their results, they mentioned “good sales of our new Exalgo” product. I had forecast $400,000 in Exalgo royalties to Zalicus in the December quarter, so I was pleased to learn that they hit that right on the button. With the initial distributor inventory back in balance, from here on Exalgo royalties should track prescription growth.

This year, I expect Covidien to target 12,000 high-prescribers and sell about $50 million in Exalgo, yielding around $4 million to Zalicus at my 8% royalty estimate. Sales should increase to $100 million in 2012, $200 million in 2013 and level off around $300 million in 2014. The associated royalties of at least $8 million, $16 million and $24 million will help fund research and clinical trial expenses, with no stock dilution. Zalicus says the royalty rate is “tiered,” so my 8% estimate is conservative.

There are many reasons to bank on Zalicus moving higher in the months ahead.

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