Impax's (IPXL) Guidance Disappoints But Excludes Hidden Opportunity - RBC

RBC Capital analyst, Randall Stanicky, cut estimates on Impax Laboratories (NASDAQ: IPXL) after guidance that was much weaker than expectations but notes that call options in the form of Welchol and Renvela are not embedded in expectations. No change to the Sector Perform rating but the PT drops to $40 from $48.

Revenue guidance of 15%+ was above consensus and reasonable. It reflects 12-14 generic launches including 6-8 ANDA approvals (of the 25 ANDA pipeline) but notably excludes generic Renvela or Welchol and both have Target Action Dates (as does 50% of the pipeline). Generic Adderall XR which was approved last week is included as is the authorized generic launch of Oxycontin in late 1Q. The concern was bottom line EPS growth of "at least" 10%.

EPS Guidance implies an EPS floor of $1.60 against a pre-4Q consensus of $2.27. That is the primary concern and while the spend outlook was modestly higher the gross margin drove the delta. IPXL called out (i) low margin partnered products and (ii) investment in quality and compliance. Each 100bps is about $0.09 and the 50% gross margin target came in about 600 bps below consensus making up much of the variance with higher spend accounting for the remainder.

New forecasts move lower and that brings the price target mechanically down. The 2016-18 revenue estimates move modestly higher while EPS drops more meaningfully on the back of lower gross margins and higher R&D spend.

There several large swing factors in the model from the potential approvals of generic Welchol and Renvela which are notably excluded. The analyst has removed both from the model but even if competition comes quickly, If IPX is first to market, Welchol and Renvela on an annualized basis could add $0.75 and >$1.00, respectively.

For an analyst ratings summary and ratings history on Impax Laboratories click here. For more ratings news on Impax Laboratories click here.

Shares of Impax Laboratories closed at $33.14 yesterday.

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