Answers - Finance

Two weeks ago the Canadian government announced that it was imposing a new tax on income trusts. This announcement shocked the market and sent the Toronto Stock Exc

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

hange S&P/TSX composite index spiraling down 2.4% for the day. To put that in US terms that was the equivalent to a 300 point drop in the DOW. Billions of dollars w

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

Examples of combination products may in

ere lost by this announcement.

Unfortunately I had recently taken a position in Enerplus Resources (ERF) the granddaddy of income trusts. It was the first Canadian

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

oil and gas trust formed in 1986. Over the past five years, while the DOW was returning peanuts, its return was over 200%. It has a 9% yield and pays a monthly div

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

idend like clock work. The plan was for it to become the anchor stock in an income oriented portfolio that I am building. As I have mentioned numerous times, to be

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

successful in this market you need to be either a trader or a dollar-cost averager. Most will be far more successful as a dollar-cost averager. I have written many

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

articles on the topic on this site. I make use both styles, but primarily I am a trader.

On the day of the announcement, ERF dropped 14%. That might have been the

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

argest one day drop that I have experienced in a stock. If it is not the largest - it is definitely in the top two or three. Here are the comments from one mutual f

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

und manager, “There is a knee-jerk reaction out there. You got a lot of mutual funds that might be experiencing cash-ins because the media headlines mak

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

e the masses want to liquidate at whatever the cost.” Based on his comments, I would presume that he was advising his clients not to sell. I have been

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

caught in downdrafts such as this before. So, I was a seller.

Seven days afer the infamous announcement, the calm mutual fund manager’s clients are down an additi

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

onal 10.5%. As a trader, I don’t rationalize over this or that - I react. Perseverance of capital is my number one priority. Although my intent was to become a long

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

term investor growing old collecting dividends, STUFF happened and my plans were changed. Many will say, that if it is such a great stock

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

it will come back. My answer is maybe. Not everyone sold seven days ago and have since suffered an additional 10.5% loss. So, now every time ERF advances a few poi

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

ts it will be faced with enormous selling pressure. Those trapped will want out. ERF could be dead money for awhile. Additionally, there is an opportunity cost of b

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

eing stuck in a stock after such a calamity. Your money could be put to use in another stock as opposed to languishing in ERF waiting for it to come back. So, the n

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

ext day I put some of the money to use into another to stock Hud Bay Minerals (HBM).

Refer to HBM.TO's chart of my site.

Over the past seven days HBM has gone up

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

1.9% versus -10.5% for ERF. Making this a double win. I have recovered some of the loss and avoided an additional loss. Many would have listened to the broker and h

.

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

eld on. Although my original intent was to be a long term investor in ERF, I realize that preservation of capital trumps intent. This was not my first rodeo, so I s

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

old and moved on.

Refer to ERF'sChart on my site

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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