Rovi and Recordati Deemed Top Picks By Analyst
Executive Summary
The team at Jefferies believe that the Spanish and Italian firms, as well as Hikma, are looking like good bets for the year ahead.
Some of Europe's less-heralded drug makers could be in for a successful 2019 and onwards, according to analysts at Jefferies who have unveiled their top picks in healthcare for the next 12 months.
In terms of specialty pharma, the broker has selected Spain's Rovi as its main one-to-watch. In particular, they have high hopes for Becat, its biosimilar of Sanofi's low molecular weight heparin (LMWH) blockbuster Lovenox (enoxaparin) which is targeting a market in Europe worth in the region of €1bn. The Jefferies team argued that the LMWH space is expected to remain relatively uncrowded "with only one other biosimilar from a small Chinese manufacturer [Techdow], thus it should be a significant opportunity." (Also see "Rovi rolls out Becat enoxaparin in Europe" - Generics Bulletin, 23 Nov, 2018.)
Turnover from Becat in the third quarter of 2018 reached €7.8m, with roll-outs in Spain, France, Germany, the UK, Italy, Austria and Latvia, and Rovi also intends to market its enoxaparin version directly in Poland and Portugal. The analysts, who have a buy recommendation on the stock, said "we expect further ramp-up in 2019 also buoyed by expansion into new geographies and penetration of existing markets."
In October last year, Rovi completed an €80m financing and much of that will go on developing Doria, a once-monthly, prolonged-release formulation of the antipsychotic risperidone developed using the firm's long-acting injectable technology called ISM. Top-line Phase III data are expected in the second quarter this year.
Jefferies concluded that the roll-out of Becat and the potential launch of Doria in 2021 should catalyze growth in markets other than Spain and help its transition into a pan-European specialty pharma business.
Another stock highlighted by the analysts was Recordati Industria Chimica & Farmaceutica SPA which they say represents "quality at a reasonable price." They expect strong sales growth momentum to continue, led by the Italian group's rare disease business, noting that the recent deal to buy the French OTC business Tonipharm "ended a long period with limited deals, which in our view contributed to weakening share price."
Last summer, Recordati made the headlines with the news that a consortium of private equity funds led by CVC had taken a controlling stake in the firm, founded in 1926, for €3.03bn, at a sharp discount to the company’s share price. Despite the CVC deal, Jefferies expects Recordati, which it stated has "a strong track record in delivery of value accretive M&A," to remain a public company, but said that a strategic outlook under CVC’s control would become clearer at a potential capital markets day in May.
A third specialty pharma company that the analyst has a buy rating on is Jordanian-headquartered but London-listed Hikma Pharmaceuticals PLC. It expects a continued strong performance from the firm's injectables unit in 2019, especially given what Jefferies called "recurring shortages and manufacturing issues" at Pfizer Inc.'s Hospira division. They also believe that the turnaround in Hikma's US generics profitability "has been impressive and improvements should be sustained with planned cost cuts," adding that launches this year of generic versions of Acorda Therapeutics Inc.'s multiple sclerosis treatment Ampyra (dalfampridine) and Johnson & Johnson's prostate cancer blockbuster Zytiga (abiraterone) "should be larger than average." (Also see "J&J Pharma Growth Led By Oncology; Firm Tries To Assuage Zytiga Concerns" - Scrip, 16 Oct, 2018.)
Hikma, which recently teamed up with the UK's Vectura Group PLC to develop generic versions of GlaxoSmithKline PLC's Ellipta portfolio of respiratory products. also has a healthy balance sheet that could allow it to deploy "significant M&A firepower," Jefferies claimed. It also pointed out that the firm was conducting a further clinical study on its generic version of GSK's inhaled blockbuster Advair (fluticasone/salmeterol) with data expected to be submitted to the FDA this year. While the drug, codenamed VR315, and other copies of Advair, have thus far failed to get US approval, it could be "an extremely profitable product." (Also see "Watch Out GSK: Vectura And Hikma Target Ellipta Portfolio" - Scrip, 8 Nov, 2018.) (Also see "Hikma's CRL Proves GSK's Witty Was Right: Generic Advair Is Hard" - Scrip, 11 May, 2017.)
One European stock that the analysts are more concerned about is Gedeon Richter PLC. On the positive side, they noted that Vraylar (cariprazine), which is partnered with Allergan PLC, is the fastest growing atypical antipsychotic in the US, which is a key driver of performance. That said, "we see a largely stagnant business outside of Vraylar, which in our view leaves little value for investors."
Jefferies is worried about the future prospects of Gedeon Richter's uterine fibroid therapy Esmya (ulipristal). The latter suffered a slump in sales last year when the European Medicines Agency's pharmacovigilance risk assessment committee (PRAC) implemented temporary measures that included stopping new patients being started on Esmya, and halting new courses of therapy being given, due to a potential association between the drug and liver injury. (Also see "Esmya Review Held Back Gedeon Richter in First Half" - Scrip, 2 Aug, 2018.) (Also see "Liver Damage Worries Lead To Further EU Restrictions On Richter’s Esmya " - Pink Sheet, 21 May, 2018.)
The PRAC review has been completed but new conditions of use, including liver tests before, during and after stopping treatment, "have weighed on sentiment," the analysts said, and "the materiality of Esmya performance is now limited," given that partner Allergan received a complete response letter from the FDA in August and "a tough reintroduction" in Europe. (Also see "Allergan's Ulipristal, Dogged By Liver Concerns, Gets An FDA Rejection" - Scrip, 22 Aug, 2018.)
Jefferies, which has a hold rating on the firm's stock, concluded by saying that Gedeon Richter's women's health and branded generics business "appears to be stagnating," especially given the lack of growth in Russia.