Maxim Group downgraded Radius Health (NASDAQ: RDUS) from Hold to Sell with a price target of $24.00.

Analyst Jason McCarthy commented:

• RDUS is "back" to an overvalued state. As such we are downgrading to Sell, from Hold. While we continue to believe that Abaloparatide-SC (and eventually the transdermal patch) will likely gain approval in 2017 in both the U.S. (PDUFA March 30, 2017) and Europe (EMA opinion early 2017), we believe significant challenges lay ahead in penetrating a mature Forteo Market, competition from Biosimilar Forteo in 2018 (from Teva [TEVA-$53.57-Buy]) and patients opting for alternative therapies.
• An anabolic daily injectable like Forteo (and eventually Abaloparatide) is typically a "last resort" option for patients, most of whom are older and more frail. As such, we do not see Radius expanding this market beyond what Lilly has achieved with Forteo, based on what we believe are only incremental improvements.
• If we consider the potential to take Forteo market share, which today generates $700M (U.S. and EU), and factor in 50% market share for Abaloparatide (that's aggressive, in our opinion), we believe using 3-5X revenue as "fair value", at a $2.3B valuation today, that RDUS is overvalued. If we then consider that in 2018 a generic Forteo enters the market from Teva, and other players in the space like Amgen continue to offer potentially more effective and more patient-friendly options like Prolia, or a once-a-month anabolic antibody in romosozumab (pending approval), there is additional risk to how much revenue Abaloparatide can generate, in our view.
• What's the risk to our Sell rating? We may see some short-term excitement as we head towards approval, in our view. We believe that it will be short lived as the focus shifts from approval risk to commercial risk and revenue trajectories disappoint.
• Conclusion. Considering the market potential and looming competition in the osteoporosis space, we are stepping our rating down to Sell, from Hold. Our model (U.S. and EU) factors in up to 50% market share from Forteo. We then apply a modest discount rate of 15% (versus 30% typically used for most companies with no approved products) to our free cash flow, discounted EPS and sum-of-the-parts models, which are equally weighted. The net result is a price target of $24 and a downgrade to Sell from Hold.

For an analyst ratings summary and ratings history on Radius Health click here. For more ratings news on Radius Health click here.

Shares of Radius Health closed at $53.00 yesterday.