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Target/Upside/Downside Scenarios
Exhibit 1: Concordia International Corp.
PRICE TARGET $1.00 DOWNSIDE PRICE TARGET $0.00
Investment summary
Biotech & Pharma, Healthcare Concordia International Corp.
We believe Concordia will underperform its peer group for the following reasons: Concordia has a global platform that allows the company to roll out new products with relative ease, but we note that growth through pricing in both the UK and US is likely limited. The NHS recently tabled a bill to control drug costs in the UK, which could impose further price controls on UK drugs. Additionally, competitive pressures have limited growth in several products.
New orphan indications could sustain long-term growth. The company is pursuing two new orphan indications for Photofrin, a well-characterized product approved in 1996. We view the new trials as relatively low-risk due to the long-term safety profile of the drug and believe approvals could sustain organic growth in the long term.
Risks
The company faces a number of risks related to integration/ execution of acquisitions, the inability to identify new products, Donnatal exposure as a DESI product, clinical trial failures, unexpected new generic drugs, reliance on third parties for various operational items such as manufacturing, price increase pushback, a significant debt load, and risks associated with managing a larger suite of products. However, the AMCo and Covis deals reduce the overall exposure to Donnatal. Given Concordia's international exposure to the UK and EU, the recent Brexit vote and the subsequent effects on the GBP are a risk to Concordia. The recently tabled NHS bill in the UK could further limit potential future price increases and could also potentially see the NHS impose lower prices for unbranded drugs in the UK. There remains a lack of clarity surrounding the NHS's intentions when it comes to potentially lowering drug prices. We also believe that following conclusion of the UK CMA's investigation into Flynn/Pfizer, which resulted in a fine and mandated price reductions, there is an overhang on Concordia. Lastly, the lack of disclosure limits our visibility into the company's operations.
Source: Bloomberg and RBC Capital Markets estimates for Upside/Downside/Target
Target price/base case
Our $1.00 (prev. $2.50) price target is based on the average of our EV/EBITDA valuation and DCF analysis. Applying a 7.25x multiple to our 2018 Adj. EBITDA forecast of ~$423MM generates a value of $1.05. Our DCF value (12.5% WACC and a -2% terminal growth rate) equates to $0.88. The average of our EV/EBITDA and DCF values is $0.97, rounded to our $1.00 price target. There are no further acquisitions included in our base case. We assume that Photofrin is approved for bile duct cancer in 2018.
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