After markets closed on Wednesday, we have started coverage on the common shares of Concordia Healthcare Corp. (TSE:CXR) with a “Sector Outperform” rating and a 12 months target price of $90.00 per share. Concordia’s preliminary strategic focus is to acquire products that generate durable cash flow, have some possible for growth, and have firmly established safety profiles. This approach is generally lower risk than traditional drug development because CXRX can examine the market landscape to get a sense of competitive threats and opportunities.
The supply of mature products that Concordia could acquire should be sustainable over the long term and we expect Concordia is well positioned to take advantage of this trend.
In our valuation of Concordia – which we expect justifies an investment at recent levels – does not factor in two possible value-creation opportunities: (1) the possible success of the company’s clinical trials of its orphan drug Photofrin and (2) the likelihood that management will complete additional accretive product acquisitions.
Our target price is derived from a 15.7 times Price to Earnings multiple applied to our 2016 estimate cash EPS of $5.64. At 15.7 times, CXRX would be valued at a 15% discount to a comparable group of global specialty pharmaceutical companies, which we expect is reasonable for a firm of CXRX’s smaller size.
Concordia Healthcare Corp. is a Canada-based diverse healthcare company. The Company is focused on legacy pharmaceutical products and orphan drugs. Commodity price, operating, and technical risks, environmental and legal risks are potential risks to be considered while investing.