Credit Suisse Starts Patheon At Neutral Following Nearly 30% Rally

Patheon NV PTHN shares have appreciated 29 percent since the IPO on July 21, and the stock is currently trading at a 10 percent premium to the relevant pharmaceutical outsourcing companies.

Credit Suisse’s Erin Wilson initiated coverage of the company with a Neutral rating and price target of $30.

Competitive Advantages

Wilson believes the clear competitive advantages in the company’s “comprehensive end-to-end services should drive revenue growth ahead of the industry, with meaningful operating margin leverage and capital deployment opportunities to support double-digit EPS growth LT.”

The analyst also stated that the increasing health care utilization and innovation in a difficult regulatory and reimbursement environment was likely to drive higher outsourcing of pharmaceutical development and manufacturing processes, especially with therapeutics becoming increasingly complex.

Related Link: Morgan Stanley Expects "Above-Market Organic Growth" For Patheon, Initiates At Overweight

Differentiated Scope

According to the Credit Suisse report, “PTHN focuses on the $40+ billion CDMO market, growing 5–7 percent annually, where we estimate outsourcing to rise to 35+ percent over the next five years.”

Patheon has manufactured 21 percent of outsourced FDA approved drugs over the last decade, and Wilson expects incremental market share gains to be driven by the company leveraging its differentiated scope that extends from drug development to the commercialization lifecycle.

“Greater cross-selling should foster longer term customer relationships and more predictable, recurring revenue streams. Disciplined cost structure initiatives should drive material operating margin expansion in the coming years,” the analyst added.

Full ratings data available on Benzinga Pro.