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Everyday, there is a new EBay or Microsoft or Dell company that files for an IPO and that will make the early buyers of its stock very wealthy in several years. The trick is how

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

to find them and invest in them safely. Sure a General Electric or Microsoft could possibly have a bump up in share price in one year of 30% or 40% with the release of a phenom

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

nal product or service, but the chances of earning 70%, 100%, or even 300% in one year with large cap companies is quite slim. But it’s not so with small and micro cap sto

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

ks. In fact every month, there will be another micro or small cap stock that nobody has heard of that will make loads of savvy investors rich.

So the key is how do you play ris

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

ier stocks like this? There are five rules you should always follow. In Part I of this series, I’ll review rule number one.

Rule Number One: Do your homework.
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro
ong>

When you find a micro or small cap stock that excites you, make sure you do your homework before making the decision to buy in. Always research the float of a small stock.
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
Why is this important? For a number of reasons. Let’s consider this scenario. You research a small stock ABC that you really like. You discover that ABC only has $10MM of
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
utstanding shares, a float of $5MM because insiders hold the other $5MM, and average daily volume for the past three months of $3.7MM. Well you could be in for a very bumpy rid
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
given the fact that daily volume is averaging 75% of the float (total amount of shares owned by the public). This discovery alone may make you reconsider buying the stock.

F
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
rthermore, if stock ABC has recently had its initial public offering (IPO), then you must absolutely find out when its lock-up period expires. Usually, insiders are restricted f
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
om selling off their shares for six months after an IPO. Let’s look at our hypothetical stock ABC again, assuming it is now four months after the IPO. Many times, share p
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a
ices of companies start falling about two months before a lock-up period expires in anticipation of insiders selling off their shares and flooding the market with volume once th
dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod
y legally can do so. If stock ABC is trading relatively flat and there is no added demand right before insiders unload their stock, an overnight doubling of the stock’s fl
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
at is bound to dilute the stock price, and possibly do it very rapidly. It’s simply supply and demand at work. There is now twice the supply of stock on the market witho
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
t any increased demand.

However, let’s look at the flip side. Let’s consider a company XYZ that has $20MM of outstanding shares and a float of $17MM. Positive news
t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
surrounding company XYZ has steadily driven its stock price higher, right up until the point the lock-up period for insiders expires. Let’s assume, even though prices hav
ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust
been climbing steadily, that the insiders still decide to cash out and sell off $2.5MM of their shares immediately. Because this company’s float is so small and demand i
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
high, release of additional shares may create a buying frenzy that will drive prices up even more rapidly.

So to summarize rule number one, always do your homework and know ev
.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
rything you possibly can about the stock you are buying. As I’ve demonstrated, in one situation a small float may hurt a stock’s price while in another situation,
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip
a small float may tremendously help the stock price.

I’ll review the remaining four rules in the remaining articles of this series.

© 2006 SmartKnowledgeU.com&trade

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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