Herbalife (HLF) Releases Findings from Navigant Economics' Research on Business Model Jul 22, 2014 09:18AM

Herbalife (NYSE: HLF) released the findings from research and analysis conducted by Walter H. A. Vandaele, Ph.D. of Navigant Economics, LLC regarding Herbalife’s U.S. business operations. Dr. Vandaele, engaged by the Company to conduct this economic analysis, assessed whether Herbalife’s operations appropriately are classified as a beneficial, legitimate Multi-Level Marketing (“MLM”) firm.

Dr. Vandaele is an economic expert with significant experience in, among other areas, the regulation and operations of firms in the consumer goods industry. Among his many professional accomplishments, he has previously served as Economic Advisor to the Director, Bureau of Competition and as Assistant Director for Regulatory Evaluation, Bureau of Consumer Protection at the U.S. Federal Trade Commission (“FTC”).

Among his numerous determinations, Dr. Vandaele concluded that, “Herbalife’s U.S. business operations are consistent with the socially beneficial MLM model and inconsistent with the socially harmful pyramid scheme model.”

Dr. Vandaele conducted extensive research and analysis to compile his report, which supports Herbalife’s U.S. business practices and validates the Company’s classification as an MLM. Key findings of his research include:

1. An estimated 97% of Herbalife’s U.S. product volumes are purchased from Herbalife for end-use consumption. The vast majority of Herbalife’s product volume (80%) is consumed by individuals outside the Member network (39%), or consumed by Members who join the Herbalife network primarily to receive product discounts for their own use or that of their family (41%).

Applying an economic test that would require Member performance payment incentives to be primarily funded out of retail-based product sales to be classified as a legitimate MLM, Herbalife’s U.S. business operations constitute an MLM and not a pyramid scheme. Based on this test, at least 62 percent of total Herbalife product purchases would need to be retail-based to represent the primary funding source of Member performance payment incentives (or at least 46 percent based on an alternative definition of Member compensation that includes Members’ wholesale purchase discounts).

  • As already mentioned, an estimated 97% of Herbalife’s product volume is purchased by Members for direct and indirect retail end-use consumption. This percentage significantly exceeds the 62% (and the alternative 46%) retail threshold required by this economic test for classifying Herbalife as a beneficial, legitimate MLM.
  • Even if personal consumption by Members who joined primarily to participate in the resale business opportunity were excluded, an estimated 80% of product purchases still would be considered retail end-use consumption, which also exceeds the 62% (and the alternative 46%) threshold for classifying Herbalife as a legitimate MLM.

2. Herbalife products have significant intrinsic value and market demand.

3. The investment required for Members to join Herbalife is not large and is mostly recoverable. Member starter pack purchases, unsellable inventory, and discretionary training material purchases can all be returned to Herbalife through a 100% money-back return policy.

4. For those who choose to participate, the Herbalife business opportunity offers a reasonable prospect of operating a financially successful business:

  • Members have a reasonable prospect of being able to profit from reselling Herbalife products.
  • The low participation costs allow lower level Members to resell profitably.
  • Many Members who choose to pursue the resale business opportunity do in fact earn performance payment incentives.
  • An estimated 32% of those individuals eligible for performance payments with one or more Members in their downline earned at least $1,000, 7% earned at least $10,000, and 2% earned at least $50,000.
  • Members can earn significant performance payments in reasonable periods of time. Of the three highest level Members, 64% were only in this position 10 years or less and 26% were Members for 5 years or less.

Dr. Vandaele’s findings are based on review and analyses of a variety of information and data sources, which was performed beginning in the summer of 2013. This information includes results obtained from Herbalife-sponsored surveys of its U.S. customers and Members that were undertaken by the market research firms Lieberman Research Worldwide (“Lieberman”) and The Nielsen Company, B.V. (“Nielsen”). For the Lieberman survey of Herbalife Members conducted in June 2013, Dr. Vandaele participated in the design of the survey sample, the development of the survey instrument and the analysis of the survey responses.

In addition to survey results, Dr. Vandaele also obtained from Herbalife an extract of profile and financial data for all individuals enrolled as U.S. Herbalife Members at any time during calendar year 2012. These data include for each Member, information such as start and termination dates, level achieved in the marketing plan, number of recruited downline Members, volume of product purchases, and performance payment incentives received from Herbalife for product purchases by their downline. The data did not include any Member’s name, address, or other similar identifying information.

Walter H. A. Vandaele, Ph.D.

Walter H. A. Vandaele is a Managing Director in the Washington, D.C. office of Navigant Economics, LLC, a wholly-owned subsidiary of Navigant Consulting, Inc. Navigant Economics is a consulting firm providing expertise primarily in economics, finance, public policy, and business strategy. Dr. Vandaele is an economist knowledgeable in the fields of microeconomics, industrial organization, econometrics, and statistics. His educational background includes a Licentiaat (MBA) in July 1966 from the University Faculties Saint Ignatius (University of Antwerp), in Antwerp, Belgium, and a Doctorandus in Economics, cum laude, in 1969 from the Tilburg University, the Netherlands. He also received a Master of Business Administration in 1973 and a Ph.D. in 1975, both from the University of Chicago. Dr. Vandaele has held several academic positions in the economics and business departments at the University of Chicago, Harvard University, and the Massachusetts Institute of Technology. He has published two books in the field of statistics and econometrics and has over a dozen published articles on economic subjects.

From December 1981 through January 1986, Dr. Vandaele served with the U.S. Federal Trade Commission as Economic Advisor to the Director, Bureau of Competition, and as Assistant Director for Regulatory Evaluation, Bureau of Consumer Protection. Since 1986 he has worked as a consultant on economic, financial, statistical, and general business issues arising in commercial disputes. This work primarily has involved analyzing competitive issues and estimating corporate damages associated with various types of legal and regulatory matters. He frequently has been designated as an expert witness and has provided expert testimony and/or expert reports that have been accepted in dozens of Federal, State, and International trials and arbitrations.

Tallgrass Energy Partners (TEP) Prices 7M Common Follow-On at $41.07/Unit Jul 22, 2014 09:16AM

Tallgrass Energy Partners (NYSE: TEP) announced the pricing of 7,000,000 common units representing limited partner interests at $41.07 per common unit. The Partnership has granted the underwriters a 30-day option to purchase up to an additional 1,050,000 common units.

TEP intends to use the net proceeds from the offering to fund a portion of the consideration for the potential acquisition from a subsidiary of Tallgrass Development of a 33.3% interest in Tallgrass Pony Express Pipeline, LLC (“Pony Express”), which owns an oil pipeline being developed by Tallgrass Development that is expected to be placed in service during the third quarter of 2014. No definitive transaction agreement for the potential acquisition of an interest in Pony Express has been executed at this time and the proposed transaction remains subject to final review, negotiations and approval by the conflicts committee and the board of directors of TEP’s general partner. Pending the use of proceeds for such purpose, TEP intends to use the net proceeds to repay borrowings under TEP’s revolving credit facility with any excess to be used for general partnership purposes.

Morgan Stanley, Barclays, Citigroup, Wells Fargo Securities, RBC Capital Markets, Credit Suisse, Deutsche Bank Securities and Goldman, Sachs & Co. are acting as the joint book-running managers for the offering.

Roth Capital Raises PT on Galena (GALE) to $8 Following Zuplenz Licensing News Jul 22, 2014 09:12AM

Roth Capital lifts its target price on Galena Biopharma (Nasdaq: GALE) from $7 to $8 and maintains a Buy rating on the company following news that it it has entered into a definitive agreement to license the U.S. rights for the commercial product Zuplenz (ondansetron) oral soluble film.

Analyst Joseph Pantginis commented, The addition of Zuplenz to Galena's "sales bag" is an interesting incremental addition to the company's current revenue streams and importantly a represents an easy addition to the current sales reps' marketing of Abstral for breakthrough cancer pain. We are taking a conservative approach to defining the potential market potential for the drug based the crowded nature of the anti-emetic market. To this end, we are currently projecting $20 million in peak sales for the drug for Galena and have made incremental changes to our model. The overall market for 5-HT3 inhibitors (ondansetron) is >$1 billion in the U.S. so we believe our $20 million peak sales estimate represents low hanging fruit. We have increased our product revenue projections from $21.4 million to $23.1 million and $35.2 million to $38.4 million for 2015 and 2016 respectively. Regarding the pipeline, management confirmed that the Phase II study of GALE 301 is enrolling better than expected. The NeuVax Phase III enrollment is also going well and the company expects to reach full enrollment of 700 patients by YE14. The protocol for the gastric cancer study with partner Dr. Reddy's (RDY-NC) in India is nearing completion.

For an analyst ratings summary and ratings history on Galena Biopharma click here. For more ratings news on Galena Biopharma click here.

Galena Biopharma closed at $2.79 yesterday.

Halozyme Therapeutics (HALO) Continues Enrollment in PEGPH20 Phase 2 Jul 22, 2014 09:01AM

Halozyme Therapeutics (Nasdaq: HALO) announced that it has resumed enrollment and dosing of patients in its ongoing Phase 2 trial (Study 202) evaluating PEGPH20 in patients with pancreatic cancer under the revised clinical protocol agreed to with the FDA in June. PEGPH20 is an investigational PEGylated form of Halozyme's proprietary recombinant human hyaluronidase under development for the systemic treatment of tumors that accumulate hyaluronan.

"Our diligent effort to rapidly re-initiate patient enrollment and dosing of both previously enrolled and new patients in this trial underscores our commitment to evaluating the potential role of PEGPH20 in patients with stage 4 metastatic pancreatic cancer. Approximately 50% of the anticipated clinical sites have received IRB approvals, and we anticipate continued IRB approvals in the coming weeks," commented Dr. Helen Torley, President and Chief Executive Officer.

GreenHunter Resources (GRH) Plans to Form MLP Jul 22, 2014 08:58AM

GreenHunter Resources, Inc. (NYSE: GRH) announced today that it has filed with the Internal Revenue Service a request for a ruling that income derived by a newly formed Limited Partnership (“MLP”) for the handling of fluid storage, treatment and disposal services, frac tank rental, water monitoring services, and environmental remediation services that constitute a part of the exploration, developmental, mining, processing, refining, and transportation of natural resources will in fact constitute “Qualified Income” under certain sections of the Internal Revenue Code of 1986, as amended.

Due to substantial growth experienced over the last couple of years that has caused GreenHunter Resources to quickly become the leader in Total Water Management Solutions™ in the Appalachian region, as well as the anticipated future growth from the various projects planned by the Company over the next three years, management and the board have determined that utilizing a MLP structure will be the most cost efficient way to fund our future capital needs.

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