RE:RE:RE:RE:The RBC report for April-21-2016 Here is the section for the Impediments. anyone who is interested in RBC report just PM me, I would send over.
We value Concordia shares by averaging the results of our EV/EBITDA valuation and DCF
analysis.
Applying a 9.0x multiple to our 2017E EBITDA forecast of $648.5MM generates a value of
$55.72. While we had previously utilized the average of a P/E multiple and our DCF to support
our valuation, we believe that given the company's significant leverage at present, a focus
on the levered balance sheet must be considered with greater weight. The 9.0x multiple is
in-line with its peer group. Our DCF value (11.0% WACC and a 0.5% terminal growth rate)
equates to $60.39. The average of our EV/EBITDA and DCF values is $58.06, hence our $58
price target (prev. $64). There are no further acquisitions included in our base case. We assume
that Photofrin is approved for bile duct cancer in 2018. Our valuation supports an Outperform
rating.
Price target impediments
The company’s strategy revolves around further M&A activity. The size, location, and other
operational attributes of these assets could make their integration into the rest of the company
a challenge. Management does not have a long track record of integrating assets, so this
remains a risk until a few more deals are completed and successfully integrated.
Although the company's R&D program utilizes a well characterized agent, Photofrin, there is
always clinical/regulatory risk associated with any program and there are no assurances that
the company will be successful in attaining additional approvals. As a commercial entity, the
company faces commercial and legal risks associated with each of its products. The threat of
new entrants is relatively low, as most of its products have either lost patent protection or
compete in highly competitive markets.
The biggest risk but a declining one following the Covis and AMCo deals revolves around
Donnatal. Donnatal is a unique product, as it was approved in 1947 when the FDA was focused
on safety and not efficacy. The product is under review by the FDA and has been since 1975
until a hearing to determine whether it is effective occurs. There are no timelines for when or
if a hearing is to be held, but the product represents ~10% of the company's total revenues
and would impact the valuation if it were not allowed to stay on the market. These risk could
impact Concordia's ability to meet our price target, valuation, and rating expectations.
Lattice wrote: yyyish, Douglas Meihm has always been concerned about Donnatal because it represents 10% of Concordia's revenues. He usually places it on as a note at the end of the report, titled Price Target Impediments (yyc, check page 9?) Douglas Meihm' phone number is 416-842-7823, just so you know I don't make this stuff up.
On a separate note, I found out today why Donnatal is no longer prescribed in Canada. How many of the Longs on this board actually asked their pharmacist or doctor? It certainly makes sense now why they need to ramp up their sales force in the US.
yycish1027 wrote: Not sure what you meant by obstacles to target. no mention of that in the article. More specific maybe?
Lattice wrote: THanks yyish, lots more to the report if you can post the Obstacles to Target, not sure what page its been a couple of weeks since I saw the report..
yycish1027 wrote: RBC target 58USD at that date.
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: 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 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.
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.