Curemark BCPC
April 24, 2011 - 10:16pm EST by
2011 2012
Price: 39.00 EPS $0.00 $0.00
Shares Out. (in M): 29 P/E 0.0x 0.0x
Market Cap (in $M): 1 P/FCF 0.0x 0.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0.0x 0.0x

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The reason there are zeros in the valuation metrics above is that Balchem is only the means to play a potential blockbuster pharmaceutical, the first ever to treat Autism invented by a private company named Curemark.

Balchem (BCPC-$39) has a riskless interest in the treatment's FDA approval and a successful product launch. Balchem had $50million of pretax profit in 2010. If the Curemark treatment makes it to market we estimate in can mean hundreds of millions of additional  pretax profit to BCPC.

Moreover, Balchem will benefit from Curemark's intention  to leverage its biomarker technology to identify appropriate candidates for its initial product, a pancreatic enzyme treatment for children with autism. Moreover, the Company's research also suggests that other neurological disorders may present viable targets for its biomarker technology and enzyme replacement therapy, including: ADD/ADHD, Parkinson's disease, cystic fibrosis and diabetic neuropathy.

According to data collected by the U.S. Department of Education, Office of Special Education Programs, autism occurs in an estimated 1 in 110 births. Recent estimates of the number of children under the age of 18 with autism in the U.S. are approximately 500,000 to 600,000, and another 2 million cases are estimated globally. There is presently no drug to treat the core symptoms of autism. Autism is more prevalent in the pediatric population than AIDS, cancer and diabetes combined. It is the fastest growing developmental disorder, and costs associated with the care and treatment of those afflicted with autism are approximately $90 billion per year. The Company's empirical research suggests that approximately 70% of the autistic population may respond to the Company's proprietary enzyme replacement therapy.
With no known cure, and no medication currently approved by the U.S. Food and Drug Administration (FDA) for treating the core symptoms of autism, the Company's enzyme replacement therapy stands to be the first medication approved by the FDA to treat those core symptoms directly. This would have a profound effect on the lives of autistic children worldwide.

Last month Curemark announced that the company has completed its targeted enrollment of Phase III clinical trials for CM-AT, its autism treatment. Curemark has reached its targeted enrollment for the study of a total 170 children, who are participating in the CM-AT Phase III trial at 18 sites across the country.

Importantly, what makes this all significant is that Curemark has also received FDA fast track status for its autism treatment. This  could mean the product could be on the market sometime in 2012.

Why bring up investing in Balchem (BPCP - $39) The stock keeps making new all-time highs. In fact BCPC shares have been doing this every single year for the past ten years. The Company has a lot going for it. It has many proprietary products, a near monopoly on Choline which is finding increasing human and animal health uses in the world today. in the past year Choline has found a surprising new use unrelated to human or animal consumption. It has begun to be used as a green and low cost substitute for certain chemicals contained in "drilling mud" used in oil fracking.

We believe it is not widely known what the impact on BCPC could be given a Curemark product in success mode.

Here is what we know
The way to play a Curemark success is via BCPC which to date has received modest milestone payments but stands to profit in a major way from its novel encapsulation drug delivery system for the Curemark proprietary enzyme formulation which Curemark has developed.  Balchem is to receive a substantial manufacturing profit from manufacturing the Curemark treatment. In addition Balchem has a long term royalty deal based on sales of the of the pharmaceutical.

Here is what we believe

It is our opinion that should sales rev up to the hundreds of millions, and indeed if they do will, again in our (educated) opinion, ramp up to be a $billion plus product. Based on normal drug industry manufacturing profit margins (hundreds of percent markup) and a royalty on sales which in success mode we think can be a double digit percentage, BCPCs pretax can multiply substantially and rapidly.

Again, assuming an FDA drug approval, and do not fail to misunderstand the pressure on the FDA because the market is so desperate for something, in success mode it is estimated that in the first full  year on the market,  sales can approach $500 million with EBIT approaching 66% or some $330 million and thereafter would be expected to grow dramatically in the ensuing years.

Balchem has lots going for it, but as good as the "lots" definitely are, the revenue and profit sources from them pale in the face of the revenue and pretax profit it can earn from a successful Curemark autism treatment. The market may be thinking about this but it is highly doubtful anyone has understood the potential impact from a Curemark success upon BCPC.


Success of the Curemark pharmacetical becoming the first ever Autism trearment
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