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Why this is a Good Time to Consider Investing in Noven Pharmaceuticals Inc. (NOVN)

This stock has begun to approach its 52-week low. It closed the trading day on February 22, 2008 at just $12.89 against a 12-month range of $26.85-12.50. The Operating Margin over the last four quarters has been negative. The US Food and Drug Administration (FDA) inspectors have censured the company for customer complaints related to a key brand. Regulators have also asked the company to wait until a competitive patent expires before launching a new presentation of a drug. It is tempting to move away from a stock with so many negatives. However, the consensus amongst analysts is to hold the stock. Why could this be?

First, the FDA warning letter has been exaggerated in some quarters. It is only a communication regarding problems that some consumers have had in releasing the holding strip on a product for Attention Deficit Hyperactivity Disorder (ADHD). This is a routine matter and well within the capabilities of the company’s technicians and suppliers to fix. Similarly, the relatively short delay in launching a special formulation of a major drug used for some psychiatric disorders, and for management of migraine as well, does not detract from stock value. The company has the resources to fight for share in a generic market, and the drug has sales of over $1 billion a year.

The real strengths of this stock lie in its recent acquisition of a pharmaceutical marketing firm, and in the goodwill which the company has in pharmaceutical circles for its formulation technology. The company has now become an integrated player in the Biotechnology & Drugs industry. It has strong positions in women’s health, psychiatry, and top drug delivery forms. It also has high potential for mental health management of children, and for treating dental pain. These strategic strengths come with a sound balance sheet. That is why the stock seems to have significant hidden value at this time.

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