Morningstar analyst update - 5/3:
(from yahoo poster AG)
Michael Waterhouse, Analyst, 04 May 2018
Competitive pressure on no-moat Akorn continues to put
the company’s performance below our expectations. We
may moderately lower our $12 stand-alone intrinsic value
estimate for Akorn as a result of ongoing weak
performance in the first quarter. This would slightly lower
our fair value estimate, which continues to incorporate a
25% probability the deal closes at the previously
announced takeover price. The situation remains highly
uncertain and rests on Fresenius' ability to prove its claims
in court and successfully terminate the deal, especially
since the FDA hasn’t recently flagged any of
manufacturing or data integrity issues at Akorn, to our
knowledge. Regardless, we’re not surprised to see
Fresenius attempt to back out of the deal given Akorn’s
weak performance. A trial between the two companies is
set to start in July in Delaware.
Competitive pressure on key products like ephedrine
sulfate and lidocaine ointment continues to take a toll on
Akorn’s revenue and profitability, but potential product
launches on the horizon, such as generic Restasis, could
help offset declines. Revenue fell 27.4% during the first
quarter with about two thirds of the decline stemming
from lost volume and the remainder on price. The decline
also included some failure to supply related penalties to
customers. Excluding items like a $17.9 million impairment
of in process R&D and Fresenius related charges,
operating margin was in the high single digits, by our
estimate. Future limited competition launches should help
improve the outlook to a certain degree, but competition
in the generics industry will remain challenging thanks to
new entrants, customer consolidation, and limited launch
opportunities.
