Northland Starts Jazz Pharma, Mallinckrodt, Shire With Outperform Ratings

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  • David Buck of Northland Capital Markets initiated coverage of Jazz Pharmaceuticals plc JAZZ, Mallinckrodt PLC MNK, and Shire PLC (ADR) SHPG with Outperform ratings.
  • Buck is positive on the long-term revenue prospect of the three names.
  • Buck noted all three companies are leaders in the sector, or positioning themselves for leadership roles in the sector.

In separate reports published Wednesday, David Buck of Northland Capital Markets initiated coverage of Jazz Pharmaceuticals, Mallinckrodt and Shire with Outperform ratings.

Jazz Pharmaceuticals: Attractive Valuation

According to Buck, shares of Jazz Pharmaceuticals ($200 price target) are "attractively" valued at 14x his 2015 earnings per share outlook of $9.70 and 11x his $12.00 earnings estimate for 2016. Nevertheless, the analyst noted the stock could see near-term volatility given developments in patent litigation with generic companies who have filed Paragraph IV ANDAs challenging its Xyrem patents which is responsible for approximately 71 percent of total sales. Accordingly, any patent litigation settlement could be a catalyst for the stock.

Buck also added that a U.S. launch of defibrotide should drive growth following an FDA response which may come in March 2016. Through a successful launch, the defibrotide franchise should expand to $122 million in 2016 and $171 million in 2017 from just $76.6 million in 2016. In addition, the company's pipeline drug JZP-110 could potentially enter a $2.5 billion branded category if clinical data (expected in the bottom half of 2016) proves to be positive.

Mallinckrodt: High Margin Generic Leader

Buck stated that Mallinckrodt ($92 price target) continues to refocus its business on specialty pharmaceuticals with recent M&A activity directed at higher-margin branded pharmaceuticals such as a $5.2 billion transaction for Questcor. The analyst noted that this transaction occurred at a discounted valuation due in part to sales coming from one drug, Acthar.

According to Buck, Acthar should generate $1.02 billion in revenue in fiscal 2015 (31 percent of total revenue) and $1.1 billion the following year (30 percent of total revenue). Under Mallinckrodt ownership, the company has been seeking to improve access for Acthar and provide more clinical data including for SLE or lupus which is set for presentation at the November American College of Rheumatology.

Shire: Bullish On Outlook Through 2020

Finally, Buck argued that Shire ($288 price target) as a stand-alone should approach its 10x20 goal of $20 billion in revenue by 2020 which will be driven by Lifitegrast (expected launch in the bottom half of 2016) that is expected to address a $1 billion market potential at peak.

Buck also stated that Shire's goal of becoming a "leading" global biotech company is possible given its portfolio of drugs in the rare disease area including Cinryze and Firazyr along with existing enzyme replacement Replagal and Elaprase. In fact, rare diseases represents 41 percent of total sales which provides the company with "durable growth" with limited risk from generic competitors.

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Posted In: Analyst ColorLong IdeasPrice TargetInitiationAnalyst RatingsTrading IdeasActharDavid BuckDefibrotideLIfitegrastNorthland Capital marketsParagraph IV ANDApharmaceuticalsquestcorRare DiseaseSpecialty Pharmaceuticals
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