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. Here is what UBS thinks about the following pharmaceuticals:
Teva Pharmaceuticals (TEVA) is a pharmaceutical company that develops, produces, and markets generic drugs. Teva has been given a buy rating by UBS because the company is in a good position to increase its market share. The company has a good position in the U.S. market and is looking to increase its presence in Europe and other emerging markets. Its earnings growth is expected to be in the double-digits due to the company’s strong P-IV pipeline. UBS is of the opinion that the Cephalon deal is going to benefit the company substantially. Shares of Teva are currently trading at $44.5 per share and are expected to reach a price target of $60, indicating a potential upside of around 35%. John Paulson had $74 million invested in Teva at the end of the third quarter.
Mylan Labs (MYL) engages in the development, manufacture, marketing, licensing, and distribution of generic and branded pharmaceuticals. UBS Investment Research has given the company a buy rating due to an expected increase in its margins. Mylan is going to leverage its low-cost Matrix manufacturing platform which will improve its gross margins. UBS expects revenues to be around $1.5 billion by the end of 2012. Shares of Mylan are currently trading at $21.7 per share and are expected to reach a price target of $28, indicating a potential upside of 29%. Steve Cohen’s SAC Capital boosted its stake in Mylan by 45% during the third quarter.
Perrigo (PRGO) develops, manufactures, and distributes over-the-counter and generic prescription pharmaceuticals and other products. It has been given a buy rating by UBS Investment Research due to Perrigo’s store branded business being more sustainable than appreciated. The company is leveraging its large customer network, its customization abilities, and its low-cost manufacturing. Shares of Perrigo are currently trading at $97 per share and are expected to go north of $115, indicating a potential upside of 18.5%. Ken Fisher had $61 million investe in PRGO at the end of September.
Watson Pharmaceuticals (WPI) is a specialty pharmaceutical company that develops, manufactures, markets, sells, and distributes generic and brand pharmaceutical products. It has been given a buy rating by UBS Investment Research due to the manufacturing problems with several of Watson’s competitors. This has given two key products, namely Micro K and Toprol XL, the opportunity to perform well. The company’s growing branded business is valued by UBS. Shares of Watson Pharmaceuticals are currently trading at $62.2 per share and are expected to go north of $78, indicating a potential upside of 25%. Columbus Circle Investors had $210 million in WPI at the end of September.
Hospira (HSP) is a specialty pharmaceutical and medication delivery company that develops, manufactures, and markets products that aid in improving the safety and productivity of patient care. It has been given a sell rating by UBS Investment Research. The FDA recently issued Hospira a warning letter which will result in a decrease in service levels of the company. The current issues with Plum and Symbiq are impacting the company’s infusion business. Also, UBS is of the opinion that it will take a while for Hospira to gain some meaningful market share. Shares of Hospira are currently trading at $31.5 per share and are expected to go south of $25. Curtis Macnguyen boosted his stake in the company by 59% during the third quarter.
Impax Labs (IPXL) is a specialty pharmaceutical company that develops, manufactures, and markets bioequivalent pharmaceutical products. It has been given a neutral rating by UBS Investment Research due to the uncertainty surrounding its supply of Adderall XR. The company has an increasing pipeline of opportunities that are going to mature over the next few years. IPX-066 has received positive physician feedback but it is going to enter the market along with many other generics. Shares of Impax are currently trading around $20 per share and are expected to remain at the same level by the end of 2012.
Par Pharmaceuticals (PRX) develops, licenses, manufactures, markets, and distributes generic and branded drugs in the U.S. It has been given a buy rating by UBS Investment Research due to its high barrier-to-entry assets. The company is producing in a niche market and is expected to leverage its position. Par Pharmaceuticals is looking to restructure its branded business, helping to increase operating leverage. UBS expects the management of the company to make smart business development deals on account of the company’s strong cash flows. Shares of the company are currently trading at $36.4 per share and are expected to reach a price target of $42. Joel Greenblatt tripled his stake in the company during the third quarter.
Momenta Pharmaceuticals (MNTA) is a biotechnology company that specializes in the characterization and process engineering of complex molecules. UBS Investment Research has given the company a buy rating and is expecting Momenta to generate revenues of $26 million by the end of the year. Due to its strong analytical technology platform, UBS expects Momenta to have a brilliant success in the follow-on-biologics space where it will likely become a partner of choice for bigger pharmaceutical companies. Shares of Momenta are currently trading around $19 per share and are expected to remain at the same level by the end of 2012. Jim Simons’ Renaissance Technologies initiated a brand new position in MNTA during the third quarter.