Impax Laboratories (IPXL) Generics Deep Dive Shows Attractive Cash Generation - Piper Jaffray
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Piper Jaffray analyst, David Amsellem, reiterated his Overweight rating on shares of Impax Laboratories (NASDAQ: IPXL) following a closer look at the dynamics surrounding Impax’s generics segment, including the assets acquired from Teva/Actavis. The analyst believes that the business is now on a more sustainable footing.
The analyst believes that IPXL is well positioned for significant longer-term earnings growth with generic assets such as Opana ER and epinephrine positioned for further share gains (plus an eventual rebound for Adderall XR (AXR)), along with steady volumes for other key assets (particularly Pulmicort) and steady growth from the brand business. Operating income is expected to be near $200M in 2016, potentially north of $250M next year (with significant upside potential from higher value generic shots-on-goal such as Welchol).
Opana ER and epinephrine are key growth drivers to keep an eye on in the generics business. Regarding Opana ER, IPXL’s product accounts for 45% of prescriptions (Rx), per IMS, compared to 34% in the beginning of 2Q16. Endo recently pulled its filing related to abuse-deterrent claims for the brand, and with settlements/litigation wins for Endo that should keep out competition for potentially several years. IPXL should be well positioned to drive further Rx growth (bearing in mind that gross margins (GM) are significantly higher than corporate GMs, which were 53% in 2Q16). Regarding epinephrine (IPXL’s Adrenaclick generic), recall that the main barrier to faster share gains has been supply. That said, IPXL did add more capacity early this year and is aiming to further ramp production by automating certain manufacturing processes. IPXL’s Rx share is at only 6%, in a $1B+ market dominated by EpiPen
IPXL is also attractively valued at a current enterprise value of $2.5B but that did not lead to a change to the price target of $32.
Shares of Impax Laboratories closed at $22.87 yesterday.
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