UBS Investment Research published a report entitled “UBS Pharma- Large Cap and Specialty” on January 11, 2012. The report isn’t publicy 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 buy rating from within its coverage universe.
Allergan (AGN) is a multi-specialty healthcare company. It has been given a buy rating by UBS Investment Research due to an improvement in its growth valuations. Earnings per share are expected to grow by more than 15-20%. The company’s Botox line is highly sustainable and Allergan’s pipeline is underappreciated at the moment. According to UBS, Allergan’s growth profile would be a nice fit with other big pharmaceutical companies. UBS is expecting revenues of $1.4 billion by the end of 2012 and earnings per share of $1. The continued roll-out of Botox Migraine and Botox OAB NDO will be closely watched by UBS. Shares of the company are currently trading at $88 per share and are expected to reach a price target of $100, indicating a potential upside of 13.6%. Ken Fisher’s Fisher Asset Management had more than $350 million invested in Allergan at the end of September.
Valeant Pharmaceuticals (VRX) is a specialty pharmaceutical company that develops, manufactures, and market pharmaceutical products. It has been given a buy rating by UBS Investment Research as it believes that the company’s organic sales growth is currently underappreciated. In the presence of an excess capacity in the pharmaceutical sector, Valeant is looking for acquisitions and is also looking to drive cost synergies to its own bottom line. UBS has full faith in Valeant’s current management as it believes that they can execute a successful roll-up strategy. Shares of the company are currently trading around $49 per share and are expected to go north of $63, indicating a potential upside of 28.5%. Valueact Capital had more than half a billion dollars invested in Valeant at the end of the third quarter.
Warner Chilcott (WCRX) is a specialty pharmaceutical company that focuses on development, manufacture, and the promotion of branded products. It has been given a buy rating by UBS Investment Research due to its faith in Warner’s management team. The company’s sustainability is currently underappreciated, according to UBS. Greater earnings are also expected due to the presence of a significant operating leverage. Shares of the company are currently trading at $16.2 per share and are expected to reach a price target of $24, indicating a potential upside of 48%. D. E. Shaw had nearly $250 million in WCRX at the end of September.
Endo Pharmaceuticals (ENDP) operates as a specialty healthcare solutions company in the U.S. It has been given a buy rating by UBS Investment Research due to a sustainable base business. With the approval of a new crush-resistant version, the Opana franchise is expected to be quite sustainable. Endo Pharmaceuticals also recently acquire companies including HealthTronics, Penwest, Qualitest, and American Medical System. Abbott Laboratories (ABT) is a competitor of Endo Pharmaceuticals and it reported a quarterly revenue growth of only 13.2% versus 71% reported by Endo. Endo Pharmaceuticals also reported higher operating and gross margins. Shares of the company are currently trading at $36 per share and are expected to reach a price target of $50, indicating a potential upside of 39%. Ken Griffin initiated a brand new position in ENDP during the third quarter.
Alkermes (ALKS) is an integrated biotechnology company developing medicines that increase patient outcomes. It has been given a buy rating by UBS Investment Research mainly due to the EDT deal, making the company immediately profitable on an adjusted EBITDA basis. The deal also makes Alkermes less dependent on Bydureon; resulting in no downside risk to Risperdal Consta. UBS believes that Bydureon is likely to get FDA approval, thus becoming an important growth driver for Alkermes. The company has assets in its pipeline which are expected to increase valuation for the company in the medium to long term. Shares of are currently trading at $18 per share and are expected to reach a price target of $21 by the end of 2012. John Burbank’s Passport Capital had the largest stake in ALKS among the 350+ hedge funds we are tracking.
Auxilium Pharmaceuticals (AUXL) operates as a specialty biopharmaceutical company. It has been given a buy rating by UBS Investment Research. Despite the new competition in the testosterone market, Testim is expected to continue growing due to its patent protection. Xiaflex is expected to pick up improved reimbursement by 2016 and is also patent protected. UBS is of the opinion that the assets of the company will be able to fit into a larger company in the consolidating sector. Shares of Auxilium are currently trading at $20 per share and are expected to reach a target price of $26, indicating a potential upside of 30%. George Soros initiated a brand new position in AUXL during the third quarter.