UBS Investment Research published a report entitled "UBS Pharma- Large Cap and Specialty" on January 11, 2012. The report isn't publicly available but we will summarize its main points. In their report, Marc Goodman, Ami Fadia, Matthew Harrison, and Derek Yuan discuss the expectations for the fourth quarter of 2011 for selected pharmaceutical companies. UBS Investment Research also believes that there are many opportunities in the special pharmaceutical sector, with continued synergies, significant deal glows, and robust core growth. In this article we will discuss those stocks in the Specialty Branded sector that UBS has given a neutral rating from within its coverage universe.
Forest Labs (FRX) is a developer, manufacturer, and seller of branded forms of ethical drug products. It has been given a neutral rating by UBS Investment Research. UBS is of the opinion that the company's earnings per share estimate of $1.2 is too high. Forest Labs is focusing on Daliresp, Viibryd, Linaclotide, and Teflaro but UBS expects only Linaclotide to perform significantly well. With an increased scrutiny by FDA, the regulatory and commercial risks are higher in the primary care pipeline. GlaxoSmithKline (GSK) is a competitor of Forest Labs and it showed a quarterly revenue growth of 4.3% versus the 7.8% shown by Forest Labs. Forest Labs also has a greater gross margin of 78%. Shares of the company are currently trading at $30.9 per share and are expected to reach a price target of $32. Roberto Mignone's Bridger Management sold its entire stake in FRX during the third quarter.
Salix (SLXP) acquires, develops, and commercializes prescription drugs in the U.S. It has been given a neutral rating by UBS Investment Research despite the presence of clinical and regulatory risks in the company's IBS program. Physician feedback for the company was positive and UBS expects that the company's Xifaxan product can be over $700 million in sales by 2015. A growth in Apriso will result in a sustainable base business but no significant upside is expected from it. Shares of the company are currently trading at $49.5 per share and are expected to reach a price target of $50 by the end of 2012.
Medicis Pharmaceutical (MRX) is a specialty pharmaceutical company that develops and markets products that treat dermatological and aesthetic conditions. UBS Investment Research has given Medicis a neutral rating. Given the physician feedback, the company's Restylane franchise is expected to lose market share and remain under pressure. The company's operating margins are also expected to be under pressure due to the high cost in sustaining a full cosmetic franchise. Shares of the company are currently trading at $33.6 per share and are expected to reach a price target of $34 by the end of 2012. George Soros sold his entire stake in MRX during the third quarter.
Cadence Pharmaceuticals (CADX) is a biopharmaceutical company that focuses on in-licensing, developing, and commercializing proprietary candidates. UBS Investment Research has given Cadence Pharmaceuticals a neutral rating. The company's Ofirmev product is likely to reach sales of $400 million, resulting in a safer alternative in a large market. The only pipeline asset under Cadence is Ionsys, which may not even be approved. UBS is of the opinion that the company's management is not going to utilize their additional funds in order to drive sustainable long-term cash flow generation. Pacira Pharmaceuticals (PCRX) is a competitor of Cadence. Cadence reported a gross margin of 67% while Pacira reported a gross margin of 10%. Cadence also has a higher price-to-sales ratio of 25x versus the 14x reported by Pacira. Shares of Cadence are currently trading at $4 per share and are expected to remain at the same level by the end of 2012.
Cumberland Pharmaceuticals (CPIX) is a specialty pharmaceutical company that engages in the acquisition, development, and commercialization of branded prescription products. UBS Investment Research has given it a neutral rating despite a disappointing launch of Caldolor. UBS is expecting a downside risk to the sales estimate of $40 million in 2016. Cumberland's limited pipeline is still beginning its development so its impact on valuation is uncertain. UBS does not expect a significant upside to any of the consensus expectations for Cumberland Pharmaceuticals. Shares of the company are currently trading at $6 per share and are expected to reach a price target of $4 by the end of 2012. Israel Englander's Millennium Management cut its stake in CPIX by 4% during the third quarter.