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One of the best indicators of corporate health is the Free Cash Flow (FCF) of a company and, unlike some other indicators, it is relativel

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

y easy to understand.

Think of FCF as the deposit you put in a savings account after paying your regular monthly bills. If this deposit k

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

Examples of combination products may in

eps increasing, you should feel pretty good about the state of your finances. On the other hand, if your deposit starts shrinking or if yo

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

need to dip into your savings account just to tread water, you know some serious financial problems may be lurking just around the corner

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

Corporations operate in much the same manner. First, like a paycheck, they generate cash from operating the business. This is called Ope

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

Combination pro

ating Cash Flow (OCF). From this, they subtract their Capital Expenditures. Capital expenditures are expenses for capital equipment and ot

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

er physical property, like real estate. What's left over is their free cash flow.

The FCF can be used for several purposes, including pay

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

ng a dividend, buying back stock, lowering debt, or saving for future acquisitions. Without FCF, a company will find it hard to grow its

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

usiness without issuing new debt or diluting the stock. Except for start up corporations that will often show negative cash flow in their

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

eginning years, free cash flow is a good indicator of a company's ability to both maintain and increase its operations.

Remember, because

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

cash flow analysis puts business activity on a “cash” basis, it can uncover problems even if a company reports positive earnings per share

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

Following aspects would a

Krispy Kreme is a recent example of this. Manipulation of earnings is a frequent problem on Wall Street and FCF can help keep everyone m

dd to the challenges in developing combination products:

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

re honest.

This isn’t to say that FCF, itself, is not without problems. If a company refuses to replace aging equipment, free cash flow c

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

n be overstated. Of course, once the equipment is replaced, cash flow may take a violent dive. This, by itself, is a red flag indicating p

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

tential danger.

Some investors like to set up various ratios using FCF. By dividing free cash flow per share by the company’s current pri

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

e per share, you’ll get a “free cash flow yield.” This is useful in comparing companies in the same industry. The higher the yield, the mo

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

Professional from academic institutions, pharmaceutical industries, health care indust

e favorable the stock.

Other investors solve for the “price to free cash flow multiple.” Here, you divide the share price by the free cas

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

flow per share. This is somewhat similar to the familiar P/E ratio and, like the P/E ratio, you are looking for lower numbers.

If you si

.

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

ply want to skip all this, go to MSN Money on the internet and click on “Stocks.’ From there, go to “Statements” under “Financial Results.

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

Companies that provide selfless information through particip

Then, go to the “Cash Flow” statement. At the bottom of the page, you’ll see that MSN has done a lot of this work for you.

Happy Hunting

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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