Oberweis: Small-Cap Favorites

11/14/2003 12:00 am EST


James Oberweis

President, Oberweis Asset Management, Inc.

The Oberweis Report, which focuses on small-cap growth stocks, continues its extraordinary performance; its model portfolio shows a year-to-date gain of  111%. Here, Jim Oberweis discusses cholesterol drug maker, KOS Pharmaceuticals, a favorite holding in the model portfolio, and a new pick, TheraSense, a play on glucose monitoring.

"KOS Pharmaceuticals (KOSP NASDAQ) delivered a stellar quarter, with earnings of $0.37 per share vs. an estimate of $0.31. Growth was primarily attributable to increased sales in its cholesterol disorder drugs Niaspan and Advicor. Ironically, KOS benefited from rising consumer awareness of cholesterol disorders following big marketing campaigns from the big boys, AstraZeneca, Pfizer, and Merck, which are pushing competing products Crestor, Lipitor, and Zocor, respectively. KOS did not spend much on marketing, but the lower price point of their products has helped to fuel sales. KOS has only about a 3.5% market share right now, but believes that share can be increased to 8-10% by 2007, implying about $1 billion in sales in 2007, up from less than $300 million in 2003. As usual, this story is not without risk. Barr Labs challenged the KOS patent on Niaspan late last year with trial set for Dec 2004. But patent litigation is commonplace in the pharmaceutical industry and we remain very upbeat on the prospects of KOS."

"Meanwhile, here is one of our newest recommendations: TheraSense (THER NASDAQ) develops, manufactures, and sells easy-to-use glucose monitoring systems that dramatically reduce the pain of testing for people with diabetes. The company began selling its first product, the FreeStyle blood glucose monitoring system, in June of 2000. This product utilizes patented technologies that can accurately measure glucose concentrations from a tiny .3 microliter sample of blood. Most competitive products require a much larger sample of between one and 10 microliters of blood, and require a more painful drawing of blood. Revenue for the most recent quarter ended Sept. 30th increased nearly 50% to $58.2 million from the same year-ago quarter. Earnings grew to $0.06 vs. a loss in the year-ago third quarter, and this marked the company‚Äôs first profitable quarter. Clients of Oberweis Asset Management own approximately 135,000 shares. These shares may be appropriate for risk-oriented investors."

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