Concordia Healthcare Corp. T.CXR.R

TD

[retiredcf]

Concordia HealthCare Corp.

(CXRX-Q, CXR-T) US$2.12 | C$2.85

The Re-Positioning Continues Event

This morning, Concordia and RedHill Biopharma Ltd. (RDHL-Q) announced a co-promotion agreement under which RedHill is to share commercialization responsibilities for Donnatal. Donnatal (an Irritable Bowel Syndrome - IBS drug) contributed ~12% of Concordia's Q3/16 sales. RedHill is an Israel-based specialty biopharmaceutical company with a focus on GI disease.

Impact: NEUTRAL

• The Agreement — Effective Q1/17, RedHill will execute the sales and marketing function for Donnatal and incur the costs. Product revenues in excess of an undisclosed threshold will be shared between the companies; while Concordia will keep base revenues. Concordia will maintain responsibility for product supply. It appears as though this strategic shift is intended to share costs and risk while creating the possibility for increased market penetration. Today's announcement follows on Concordia's December 19 announcement that the company would eliminate the Donnatal contract sales force.

• Key Headwinds - Donnatal's ~30% Y/Y decline in sales in the first nine months of 2016 provides the backdrop for today's announcement. The decline appears to be a result of fundamental change in the IBS competitive dynamic over the last 18 months; with the entry of Allergan's Vyberzi and Valeant's Xifaxan - 2 well studied drugs with big commercial budgets. We also noted that RedHill appears to be a product development company with little current front-line sales and marketing presence in the GI market. As such, our preliminary view is that this co-promotion agreement seems more likely to yield cost-savings; with less likelihood of driving a near-term turnaround in Donnatal's sales performance.

  Concordia's Growth Challenges - For Q3/16, Concordia's U.S. business declined 50% Y/Y; the second consecutive quarter of sequential decline. Concordia's other 2 major drugs Nilandron and Plaquenil also face genericization erosions. Concordia's international business was flat (excluding F/X) sequentially in Q3/16.