Leerink Keeps Depomed (DEPO) at 'Outperform'; Disappointing Q3 Steps-up Pressure to Sell
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Leerink affirms its Outperform rating and $22 price target on Depomed (Nasdaq: DEPO) following Q3 results and update on Monday night.
Analyst Jason M. Gerberry commented today,
DEPO reported disappointing 3Q results, missing our/Street’s revenue forecasts by 13% and reducing 2016 revenue guidance for the third consecutive qtr. The miss reflects challenges DEPO faces as a stand-alone, will likely heighten pressure to sell the company albeit at a lower valuation reflecting deteriorating commercial prospects for DEPO’s portfolio products.
About half the 3Q miss was attributable to inventory stocking fluctuations and payer contractual price protections that limited flow-through of August price increases while the remainder was attributed to more durable issues like (1) payer rebate “catch-up” – the gross-to-net deductions are expected to increase going forward; (2) lower than expected script demand for lead products, Nucynta and Gralise. As a result, we’re lowering our revenue forecasts by 6% for 2016 and by 8-18% for 2017-21, and our revised ests are now 8-12% below yesterday’s consensus. Our updated DEPO stand-alone price target is $15/shr, based on our DCF, and our takeout valuation for DEPO is $22-23. Our OP rating is based solely on takeout prospects -- limited commercial-stage, accretive targets with good patent runway, the analyst noted.
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