Answers - Finance

Valuation means assigning a ''proper'' value, or price, to a stock. The quote marks around ''proper''

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

remind us that while the word implies that there is a single ''correct'' price, in fact the concept is

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

Examples of combination products may in

theoretical. Valuation is nevertheless an important guide to what price at which to buy or sell a stoc

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

k. If you pay too much for a stock—more than it is ''worth''—your returns will suffer forever after.

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

any large-scale institutional investors—mutual funds, brokerages, hedge funds—have developed complex m

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

Combination pro

athematical models for determining a stock’s ''proper'' price. The individual investor needs to go a d

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

fferent route.

Fortunately, a second method exists which is just as good, easy to understand, and rea

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

dily available. This second method uses what are called valuation ratios.

Valuation ratios divide the

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

stock’s current price (P) by quantifiable aspects of its business: its earnings, its revenue, its book

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

value, and so on. Each ratio is then compared to historical norms to tell whether the stock is fairly

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

priced at its current price P.

Here are some common valuation ratios that the Sensible Stock Investor

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

Following aspects would a

uses:

--P/E, or price-to-earnings ratio. This compares the stock’s price to the company’s reported e

dd to the challenges in developing combination products:

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

rnings. This is the famous ''multiple'' that one often hears about.

-- P/S, or price-to-sales ratio,

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

which compares the stock’s price to the company’s revenue.

-- P/B, or price-to-book ratio, which comp

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

res the stock’s price to the company’s book value (as computed by accepted accounting principles).

--

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

PEG, which is the P/E ratio divided by the earnings growth rate of the company.

-- P/CF, or price-to

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

Professional from academic institutions, pharmaceutical industries, health care indust

cashflow, which compares the stock’s price to its annual flow of cash.

Happily, all of these valuatio

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

n ratios, plus others, are available for free on virtually all financial Web sites. They are usually c

.

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

rrent to the very day. If you know the historical benchmarks, it is easy to interpret each ratio as in

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

Companies that provide selfless information through particip

dicating whether, like Goldilocks’ porridge, a stock’s price is too hot, too cold, or just about right

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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Answers - Valuing Stocks Using Valuation Ratios

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