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Generic drug giant Apotex Health Corp.‘s dominance of the domestic pharmaceutical market is one of the reasons analysts are citing for their bullish stock recommendations as they initiate coverage of the newly public company.
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Shares of Apotex (APTX:TSX) were trading at $34.62 at close Monday, up about 44 per cent from its June initial public offering price of $24.
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Analysts who have been adding the stock to their coverage universe see even more upside ahead, giving the Toronto-based company an average 12-month price target of $40.25 according Bloomberg data. The average is based on the calls of 12 analysts, with buy ratings across the board.
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Target prices ranged from the low end of $36 at Raymond James Ltd. to the high end of $43 at RBC Capital Markets. BMO Capital Markets priced the shares at $39 while National Bank Capital Markets priced them at $36. At the high end, the upside to the stocks would be about 24 per cent.
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“Apotex has a leading position in Canadian generics with nearly one quarter market share, where its dominance hedges against competition,” Michael Nedelcovych, an analyst at TD Cowen said in a note, rating Apotex a buy with a 12-month price target of $40. TD Securities Inc. was one of the lead underwriters for the IPO, along with RBC Capital Markets and Bank of Nova Scotia.
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The pharma giant, which exports globally to 70 countries and has operations in Canada, the United States, Mexico and India, started trading on the S&P/TSX composite index on June 9.
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In several notes, analysts cited Apotex’s leading status in the Canadian pharma space, which they said appears unassailable, as a catalyst for the shares.
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“Our positive view is based on durable moat and number-one position in the Canadian generic/specialty pharma market,” BMO Capital Markets analyst Evan David Seigerman said.
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The company holds the number one spot in Canada for prescriptions filled, generics sales value and employee count, while also numbering among the top-10 generics companies in the U.S. and Mexico, Raymond James’s Michael Freeman said, with the Canadian division key to Apotex’s future plans.
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“Our constructive view is anchored in APTX’s ability to use its dominant (and growing) Canadian generics franchise as a funding engine for expansion into adjacent, higher-margin categories,” he said.
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Apotex management laid out plans to shift some of its sales to higher-margin specialty generics and brands and biosimilar drugs — copies of original biologic medications which are used to treat conditions such as rheumatoid arthritis and some types of cancer, among other chronic illnesses.
