BUY (REPH, $7.14)
Expecting Additional Phase 3 Validation for Meloxicam IV by YE16 – Manufacturing Business Provides Valuation Floor: Initiating BUY/$22 TP
November 9, 2016
Jonathan Aschoff, Ph.D.
- We are initiating coverage of Recro Pharma, Inc. with a Buy rating and a 1-year target price of $22, which is supported by a DCF analysis with a 5% discount rate and a 8 multiple of the terminal value for the projected 2020 EBITDA of $48 million. We view Recro’s late stage meloxicam IV program as highly de-risked, representing considerable upside to its present value. Current cash of $24.5 million should fund the company into 1H17.
- The key near term investment catalyst for Recro is the 4Q16 release of results from the second Phase 3 meloxicam IV trial. Meloxicam IV is Recro’s leading drug, currently in Phase 3 for post-operative pain following abdominoplasty and already successful in Phase 3 for post-operative pain following bunionectomy. Meloxicam has been dosed orally for many years to control pain in rheumatoid arthritis and osteoarthritis, and is therefore known to be effective for pain control. In the postoperative pain setting, Recro’s meloxicam IV has the advantage of being formulated with long acting NanoCrystal technology, allowing for a convenient once daily dosing given its extended ability to control pain.
- Meloxicam IV is capable of delivering peak US revenue of about $200 million, by our estimate. We estimate submission of the meloxicam IV NDA in mid-2017, and FDA approval in mid-2018. We believe that a 100 rep salesforce would be required to effectively penetrate the desired number of surgical centers. Recro will generate data with meloxicam IV versus standard of care, to be available after approval, as well as price the drug comparably to competitor Ofirmev, so as to facilitate uptake among hospital formularies, a price sensitive market.
- We believe that Recro’s contract manufacturing facility will continue to throw off excess cash, with 2016 revenue projected to be $60 million. The 97,000 square foot cGMP facility manufactures a mix of proprietary and generic drugs for its clients, mostly extended release formulations, and is compensated via product sales, royalties and profit sharing. From excess cash flow alone, Recro has been able to pay off almost half of the $50 million it borrowed to pay for the facility, which it acquired in 2Q15 from Alkermes (ALKS – $53.85) along with meloxicam IV. The facility provides service capabilities, process development, optimization, process scale-up, clinical supply and validation, and commercial supply.
This publication does not constitute and should not be construed as an offer or the solicitation of any transaction to buy or sell any securities or any instruments or any derivatives of the securities mentioned herein, or to participate in any particular trading strategies. Although the information contained herein has been obtained from recognized services, and sources believed to be reliable, its accuracy or completeness cannot be guaranteed. Opinions, estimates or projections expressed in this report may make assumptions regarding economic, industry, company and political considerations, and constitute current opinions, at the time of issuance, which are subject to change without notice.
This report is being furnished for informational purposes only, and on the condition that it will not form a primary basis for any investment decision. Any recommendation(s) contained in this report is/are not intended to be, nor should it / they construed or inferred to be, investment advice, as such investments may not be suitable for all investors. When preparing this report, no consideration to one’s investment objectives, risk tolerance and other individual factors was given; as such, as with all investments, purchase or sale of any securities mentioned herein may not be suitable for all investors. By virtue of this publication, neither the Firm nor any of its employees shall be responsible for any investment decisions. Before committing funds to ANY investment, an investor should seek professional advice. Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice, or to be used by anyone to provide tax advice. Investors are urged to consult an independent tax professional for advice concerning their particular circumstances. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, either expressed or implied, is made regarding future performance.
National Securities Corporation (NSC) and its affiliated companies, shareholders, officers, directors and / or employees (including persons involved with the preparation or issuance of this report) may, from time to time, have long or short positions in, and buy or sell the securities or derivatives (including options) thereof, of the companies mentioned herein. One or more directors, officers, and / or employees of NSC and its affiliated companies, or independent contractors affiliated with NSC may be a director of the issuer of the securities mentioned herein. NSC and / or its affiliated companies may have managed or co-managed a public offering of, or acted as initial purchaser or placement agent for a private placement of any of the securities of any issuer mentioned in this report within the last three (3) years, or may, from time to time, perform investment banking or other services for, or solicit investment banking business from any company mentioned in this report.
This research may be distributed by affiliated entities of National Securities Corporation (NSC). Affiliated entities of NSC may include, but are not limited to, vFinance Investments, Inc., National Asset Management and other subsidiaries of our parent company, National Holdings Corporation.
The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and the income they produce if any, may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors. Furthermore, NSC may follow emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. This report does not take into account the particular investment objectives, financial situation or needs of individual investors. Before acting on any advice or recommendation in this material, the investor should exercise independent judgment as to whether it is suitable in light of his/her particular circumstances and, if necessary, seek professional advice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance.
Additional information relative to securities, other financial products, or issuers discussed in this report is available upon request. Neither this entire report, nor any part thereof, may be reproduced, copied or duplicated in any form or by any means without the prior written consent of National Securities Corporation. All rights reserved. NSC is a member of both the Financial Industry Regulatory Authority (FINRA) and the Securities Investors Protection Corporation (SIPC).
For disclosures inquiries, please call us at 1-800-417-8000 and ask for your NSC representative, or write us at National Securities Corporation, Attn. Supervision Department, 410 Park Avenue, 14th Floor, New York, NY 10022, or visit our website at www.nationalsecurities.com