Alpharma, Inc. (ALO) is focusing on establishing itself as a specialty pharmaceuticals company after the sale of its generics and active pharmaceutical ingredients business segments. We expect 2008 to be another transitional year for the company with earnings declining significantly mainly due to increased selling, general and administrative spend related to the launch of painkiller Flector Patch.
In the absence of any potential catalysts, investor focus will remain on the acceptance and ramp-up of Flector Patch. Although we expect earnings to rebound in 2009, we remain concerned about Kadian painkiller's growth prospects given the intense competition and the sales ramp of Flector Patch.
The company is working on establishing long-term growth, but a lot depends on its ability to execute its plans successfully. While the company reported that Flector Patch is off to a strong start, we remain concerned about the sustainability of these strong prescription trends. Flector Patch is facing tough competition from Voltaren gel, a recent entrant in the market. Alpharma is working on reviving growth for Flector Patch through enhanced messaging and several other initiatives.
Moreover, the company's Animal Health segment is under pressure due to rising costs. Alpharma shares are currently trading at 93.7x our estimated calendar year 2008 EPS of $0.24. We believe the shares are over-valued at current levels. We rate the stock a Sell with an $18 price target. Our price target is based on 22.5x our 2009 EPS estimate.
Arpita Dutt, CA, contributed to the report.
Read the full analyst report on ALO
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