Concordia Healthcare Corp. T.CXR.R

RBC

[retiredcf]

Have current and upside scenario targets of US$ 58.00 and $75.00. GLTA

April 21, 2016 

Concordia Healthcare Corp. 

CXRX Forms Committee to Review Strategic Alternatives & Q1 Preview 

Our view: Our fundamental view of Concordia suggests the shares remain undervalued at current levels irrespective of whether a bid materializes (as noted by Bloomberg). Q1 Donnatal TRx, which were below expectations, were partially offset by Lanoxin and Plaquenil strength, underscoring the growing importance of AMCo. 

Key points: 

Scenario Analysis*

Committee formed to review strategic alternatives. Concordia
announced today that it has formed a special committee of independent
members of the board to consider various strategic alternatives potentially available to the company. We do not know if the committee was formed in response to the Bloomberg headline* that indicated Blackstone was considering a bid or was already in place. Management noted that it has had discussions with interested parties, but cautioned that there can be no assurance that any transaction will occur.

Our thoughts on the headlines. Although we have no visibility on whether
a bid or some alternative is incoming/under consideration, we continue to
believe the shares are fundamentally undervalued, hence our Outperform
rating. We note that the peer group is currently trading at ~9.9x 2016 EBITDA versus CXRX at 6.8x. Our target of $58 is calculated utilizing a 9x Prev.multiple applied to our 2017 EBITDA of $648MM (consensus $687MM) and a DCF. As such, we understand why suitors could be contemplating a bid for Concordia but we cannot opine on whether a transaction will occur. 2015 36.4A

Updating Q1/16E and 2016E forecasts to reflect Rx trends in the U.S. business. Our review of YTD TRx trends suggest lower Donnatal revenues partially offset by Lanoxin and Plaquenil AG strength. Our revenue forecast for Q1/16 is now $224.9MM vs. our previously forecasted $228.4MM. We now expect $138.5MM in Adj. EBITDA and forecast Adj. EPS to be $1.38/ sh. Donnatal weakness is likely due to increased competitive pressure in the IBS market (Viberzi launch) plus the revamped salesforce. We have reduced Donnatal revenues by ~$15MM in 2016E, partially offset by stronger Lanoxin AG revenues of ~$5MM and an additional ~$5MM in Plaquenil AG revenues, both increased due to positive script trends. Our AMCo revenues remain unchanged. Total revenue is reduced by ~$1MM in 2016E. Adj. EBITDA for 2016 declines by ~$0.9MM to $606MM and Adj. EPS declines by $0.02 to $6.49.