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Tag Archives: #IBB



$CXRX IPO January 3, 2014.

Concordia International, regarded as the Canadian little sister of Valeant, was taken to the mat in Friday’s trade after a disaster of a Q2 2016 earnings report. Including after hours action, a full 40% was taken off the market cap of $CXRX ($510mm now). A $0.04 earnings miss (“adjusted” earnings of $1.38 vs. $1.42, < 3%) does not normally elicit such revulsion, but in concert with horrendous un-adjusted (i.e. GAAP) numbers, reduced forward guidance, departure of the CFO, and abolition of the dividend, all that was missing was a crow’s foot from this steaming mess of a report.

The qtly GAAP loss was -$570.5mm (-11.18 per share), largey due to the write down in the value of Plaquenil and Nilandron, both of which are under assail from generic drug competitors.

Founder, Chairman & CEO Mark Thompson formerly worked at Biovail, before Valeant tucked them under their wing in 2010. Concordia has been highly acquisitive since their formation, spending $5bln since 2013 (Covis and AMCo being the largrest). The focus has been on buying legacy drugs (i.e. buying spent oranges and extracting more juice from them) and tweaking the pricing (i.e. not lower).

A great deal of debt was assumed to finance the aforementioned m&a binge. Total debt is $3.3bln. The benchmark (cusip EK849878) US$735mm 7% April 15, 2023 , issued in 2015 to finance the Covis aquisition, broke through $80.00 in Friday’s trade to settle in the high $70’s. I would expect the rating agencies to take action, now that the horse has left the barn, in the coming weeks. CCC, aka “fish hooks” are likely in the cards. Credit ratings are alphabetic, it should be kept in mind. A is good, C much less so and D stands for default. Expect analysts that have not yet suspended coverage to turn their attention to recovery rates. The base case recovery rate assumption on Concordia debt, in a tap out situation, will likely not have a 7 handle, as in 70 cents on the dollar.

There are many unknowns for equity holders. The trading range on $CXRX has been a wide $9.65 (Friday’s intraday low) to $89.10, sitting 88% below their all time high. The margin for error on execution going forward is very low. Jesus take the wheel. I’d give it a wide berth. JCG

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Intercept Pharmaceuticals, Inc., waiting until almost midnight, the Friday before the Memorial Day long weekend, 5/27/16, announced the FDA approved Ocaliva (Obeticholic Acid) for the treatment of the liver disease PBC (primary biliary cholangitis), formerly known as primary biliary cirrhosis. Approval was largely expected (the FDA Advisory Committee had previously voted 17-0 in favour), but the good news appears to be that the conditions attached to the approval are modest. Safety concerns had some worried that sales could be hampered by restrictions on use in patients with moderate or severe hepactic impairment, but the prescription label has no such restrictions from my reading of it (link for your perusal): ocaliva_pi

PBC is a rare, autoimmune cholestatic liver disease that puts patients at risk for life-threatening complications. PBC is primarily a disease of women, afflicting approximately one in 1,000 women over the age of 40.

Sales of OCA will begin In 7-10 days and expectations are that peak sales could reach $2.6 billion per annum. $ICPT closed Friday at $141.77 with a market cap of $3.5bln. With a typical valuation of 7x sales, clearly there is scope for a rally from here. ICPT’s float is small at 17.44mm shares and 3.4mm shares (19.5%) are held short. 78.5% of the shares are held by institutions. Fidelity Investments is the largest holder with almost 15%. The lifetime high for the stock was $462.26, which will not likely be eclipsed until OCA for NASH (fatty liver) is approved in early 2019, which obviously depends of the results of the 2,000+ patient Phase III global trial.

Another likely scenario is an approach from a larger player seeking a blockbuster drug to add to their stable. With OCA approved for PBC there is now a risk buffer to await the 2018 outcome of the phase 3 “Regenerate” trial for OCA in the treatment of NASH. Nonalcoholic steatohepatitis (NASH) is a significant metabolic form of chronic liver disease in adults and children effects a much larger percentage of the population that PBC. The OCA dosage for the treatment of PBC are 5-10mg whereas for NASH the trial is being conducted at dosages of 10 and 25mg. There are currently no drugs approved for the treatment of NASH and OCA for PBC is the first liver drug approval granted in the last 20 years. PBC & NASH are distinct, progressive liver diseases. Both diseases may lead to fibrosis and cirrhosis of the liver. From a valuation perspective most would argue 20% to the PBC application of OCA and 80% to the much larger NASH opportunity.

XBI the SPDR S&P Biotech ETF is -26% ytd in 2016. ICPT is the 4th biggest holding in the ETF at 2.6%.

What lies ahead:

Next week analysts will be tweaking their ICPT numbers based on the terms of the OCA for PBC approval. Most recently MS moved to underweight with a price target of $80. Stingy indeed when ICPT have > $22 a share in cash on their balance sheet! Merrill Lynch have an underperform on the stock and a $144 target. ML used to be the biggest bull on ICPT, with a target > $800 per share when Rachel McMinn Ph. D covered them, before joining Intercept Pharma as Chief Business & Strategy Officer in April 2014.

The street conjecture will also begin as to the timing of a bid and take-out premium likely on a bid for ICPT, now that a level of uncertainly has been removed. JCG

Disclosure: Long ICPT, 3% weighting, trailing stops, not inclined to sell < $200.

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