Blog : Stellar Upside in this Pharma Penny Stock

August 21st, 2008

Recently, we profiled Stellar Pharmceuticals (SLXCF - OTC-BB) for subscribers of Peter Leeds Penny Stocks. After passing this company through Leeds Analysis, we found that SLXCF is in a great fundamental position with proven management and tremendous upside potential.

To provide an even deeper look into the company, we've contacted Peter Riehl, CEO of SLXCF, who generously provided us with the following elaborations.

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1. Competitive Landscape:

(who else is going for the same customers, and where does your company fit in?)

The pharmaceutical industry is highly competitive and is characterized by a progressively changing technology. The Company competes by targeting smaller niche markets that the larger companies do not find lucrative enough to focus their resources. Stellar’s product development strategy focuses on seeking novel applications in markets where its products demonstrate true cost effective therapeutic advantages.

Currently, Stellar has focused on polysaccharide based therapeutic products used in the treatment of osteoarthritis and certain types of cystitis. These niche markets allow Stellar to be very competitive and certainly more successful. The Company intends to build on this strategy developing additional healthcare products aimed at similar niche pharmaceutical markets.

Stellar also intends to build revenues through out-licensing its products and in-licensing other products for Canada and international markets that are focused on similar niche markets.

2. Competitive Advantages:

(what factors give you a leg up on your competition?)

Management believes that Stellar’s main competitive advantages include:

(i) the ability to conduct research and development and produce products in a cost effective manner;

(ii) a focus on the development of formulations and technologies targeted at smaller market niches that larger multi national pharmaceutical companies have ignored because of size;

(iii) the ability to offer cost effective pricing while maintaining acceptable gross profit margins;

(iv) the patents and IP it holds for certain of its products; and

(iv) the ability to identify market needs and develop new niche products.

3. Barriers to entry:

(what makes is difficult for new competition to emerge in your space?)

(i) In order for any company to enter a health care market, clinical studies must be completed and regulatory approval sought from the governing authorities. This means higher costs and longer waiting periods for market entry.

(ii) Stellar has patents and IP protecting its current technology making it more difficult for new competitors to enter the market.

(iii) No known cause of diseases treated therefore more difficult and costly to develop competitive products.

4. Threats to Success:

(what are the most concerning issues, and how are you addressing them?)

(i) Break through discoveries that would limit product life cycle.

(ii) Failure to be able to manufacture or supply markets for whatever reason. Stellar has attempted to limit this potential through multiple manufacturing sites and raw material suppliers.

5. Industry Outlook:

(what are the expectations for your industry over the next five years?)

(i) Stellar’s products are prescribed mainly to the older segment of our population and since we have an aging global population tread the demand for these treatments will continue to grow.

(ii) Stellar is not aware of any new treatments on the horizon that would impact their current markets to any extent.

6. Company Outlook:

(what do you expect your company to look like five years from now?)

(i) Many of the out-licensing agreements that Stellar has entered into (over 58 to date) are now achieving in-country regulatory approvals for marketing. This means accelerated revenues (both royalty and landed cost models) and profits for Stellar, which will grow substantially over the next 5 years.

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Blog : Stellar Upside in this Pharma Penny Stock