2012 Preview: K-V Pharmaceuticals

With 2011 finally in the books, it's time to reflect on what transpired last year and which companies could be facing business-altering decisions in 2012. On today's plate, we have small-cap biotechnology company K-V Pharmaceuticals (NYSE: KV-A  )

But before we dig too deeply into what 2012 may have to offer, let's get a quick snapshot at how 2011 treated shareholders:

2011 Stock Return (45.1%)
Price-to-Earnings (TTM) NM
Price-to-Sales (TTM) 2.7
Cash/Debt $121.6 million / $450.8 million
Projected 5-Year Growth Rate 24%
Forward P/E NM

Source: Yahoo! Finance.TTM = trailing 12 months; NM = not meaningful.

Stealing a scene right out of Wayne's World, 2011 was more like a "camera one -- camera two" kind of year. The first three months were marked by the stock spiking higher, by more than 1,000% at one point, relating to the FDA approving Makena, the company's preventative pre-term birth injection. The final nine months of the year involved a series of bungles that would make the Cincinnati Bengals proud, securing CEO Greg Divis the No. 2 spot on my list of the worst CEOs of 2011. But these results are now in the past. Let's look ahead and see what could be driving K-V Pharmaceuticals' stock in 2012.

What to expect
The first thing K-V needs to tackle is its pricing of Makena. Last year, the threat of congressional involvement and a ruling by the FDA disallowing Makena exclusivity rights forced the company to drastically reduce its pricing on the drug from $1,500 to $690 per dose. At $690 -- still a marked hike over the previous combination of treatments that ran around $20 -- it's quite possible that K-V's drug may not ever return a profit following the significant capital invested in developing the drug with Hologix (Nasdaq: HOLX  ) . Hologix smartly handed Makena off to K-V following approval, washing its hands of the drug and collecting $199.5 million in the process.

For K-V, establishing methods that make Makena more affordable and accessible to the public, along with bettering its public image are paramount to its success. Conserving cash will also be a primary objective for K-V in 2012. If 2011 proved anything, it was that getting a drug approved by the FDA doesn't guarantee that the drug will successfully sell. Dendreon's (Nasdaq: DNDN  ) prostate cancer drug Provenge has had difficulty gaining traction after doctors, unsure of speedy reimbursement, balked at fronting $93,000 per patient, while Human Genome Sciences' (Nasdaq: HGSI  ) lupus drug Benlysta hasn't exactly flown out of the gate, either, with demand for the drug weaker than expected likely because of the waxing-and-waning nature of the disease. Because of K-V's cash burn rate, I wouldn't be surprised if more layoffs were announced this year or if the company sought out a buyer. If anything, shareholders should be prepared for a secondary offering by midyear, in my opinion.

Foolish roundup
Up until recently, I've held out hope that K-V would be able to turn things around, but my lack of confidence in its management is making that reality very hard to believe. K-V is facing a potential cash-crunch soon and is having a difficult time marketing Makena. That creates a scary scenario for shareholders heading into 2012 and is the primary reason I'll be ending my outperform rating on CAPS this week.

What are your thoughts on K-V's future? Share them in the comments section below and consider adding K-V Pharmaceuticals to your free and personalized watchlist to keep track of the latest news with the company.

Also, if you're looking for one more great idea to kick off the new year, consider downloading a copy of our latest special report, "The Motley Fool's Top Stock for 2012," in which our top-notch team of analysts highlight a company dubbed the "Costco of Latin America." The best part is that the report is completely free!

Fool contributor Sean Williams has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Dendreon. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's always the best price: free!

Read/Post Comments (2) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 05, 2012, at 12:04 AM, sapvb wrote:

    Mr. Williams your analysis seems to be purposely overlooking the FDA investigation into the inconsistant formulation that substitute for the stringent oversight that the FDA has over Makena. It would be the main reason K-V could justify the mark up since formulary substitutes are unknows at this point, a strange situation in the drugs dispensing field. Currently Formualries are unregulated and indpendent of oversight and an adverse report from the FDA could shut down Makena's competition and with it the company would corner the market overnight. The FDA has all the cards to K-V future even with their successful product.

  • Report this Comment On January 05, 2012, at 12:59 PM, fight4preemies wrote:

    It's not accurate to call compounding pharmacies "unregulated and independent of oversight." They aren't mixing up moonshine in the bathtub. Pharmacies are regulated by state boards of pharmacy, and must meet their rules and regulations. In addition, certain FDA, DEA and other rules and regulations also apply.

    To my admittedly limited knowledge, there has been no details released about the KV-sponsored study or the FDA's plans to look further into these claims. The more info the better, I look forward to hearing more.

    Furthermore, drugs made by the batch aren't infallible either. Something the former KV Pharm CEO probably pondered while sitting in jail after shipping oversized and irregular tablets out to pharmacies.

    I don't think the FDA holds all the cards, I think KV has made it's own bed and it pisses me off because Makena had such a great opportunity to help at risk moms and their babies, but they bungled everything and instead it was going to be MORE difficult to get the medication. The FDA's intervention saved lives.

    By the way, no, I'm not a pharmacist, just someone who has taken up the cause of fighting prematurity since my best friend lost her daughter to complications of her premature birth 6 years ago.

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