Concordia Healthcare Corp. T.CXR.R

RBC

[retiredcf]

Their upside scenario target is also reduced to $27.00. All targets are in US$. GLTA

September 19, 2016

Concordia International Corp.
NHS Tables Bill to Further Control UK Drug Cost

Our view: The NHS tabled a bill late last week to further control UK medical costs. While we have highlighted this risk for some time, we note that the impact on AMCo remains relatively unknown, so we have adopted a cautious stance and reduced 2017E revenues by ~$32MM and Adj. EBITDA by ~$26MM. While CXRX appears inexpensive, we have assigned a Speculative Risk qualifier given likely volatility. We also lower our price target to $14 from $25.

Key points:

• On Friday, Concordia shares came under significant pressure largely due to the tabling of a UK Bill to help control the cost of drugs and medical supplies. In addition, the company was removed from the index the same day, putting further pressure on the shares.

• NHS tables Health Service Medical Supplies (Costs) Bill. The thrust of the Bill is to align the current Statutory Scheme for drug reimbursement with the much larger Voluntary Scheme (Pharmaceutical Price Regulation Scheme – PPRS). While the Bill provides for the provision of pricing and other information and the ability to disclose this information in specified circumstances, the key to the Bill was the recommendation of implementing a 7.8% payment (cut) to the Statutory Scheme to bring it in line with payment ratios under the Voluntary Scheme (PPRS).

• Impact on Concordia not clear at this point. While the Bill is clear about the impact (a 7.8% payment) as it relates to Statutory Scheme drug sales, for those companies that sell unbranded medicines under the Voluntary Scheme, such as Concordia, the impact is less clear. CXRX management believes that the government will “limit the price of unbranded medicines” and thereby limit future price increases in markets with little competition. In essence, management believes that CXRX will not be required to make the 7.8% payment and should only be faced with limited price increases in markets with little competition. However, the government's website states that the Bill will "enable the government to require companies to reduce the price of a generic medicine, or impose other controls on that company's unbranded medicine..." As such, we believe it would be prudent to adopt a more cautious stance , even if CXRX were correct and does not need to make the payment, given potential price reductions.

• CXRX impact – forecast ~$32MM revenue and $26MM EBITDA reduction in 2017 at 7.8% payment. While CXRX receives ~£6 on average per prescription, less than the maximum £8.40 that a UK patient must pay before being fully reimbursed, we still expect that the Bill could affect CXRX in some form. This could be a price reduction on some drugs or some level of average payment. Given the uncertainty, we have reflected a simple 7.8% payment on the company’s UK portfolio even though a number of drugs would likely not qualify. We expect mid- year 2017 implementation of the Bill. We also believe this will remain an overhang for 6–12 months until the specific details of how the Bill ultimately impact CXRX are known 

[juniorbullalive]

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[Craigbad]

Don't worry, Rbc reduces their target almost every other week. They must have created a full time job for someone to do it! Lol