A Jefferies analyst on Wednesday started coverage of drugmaker Alpharma Inc. with a "Buy" rating Wednesday, saying the stock is an attractive investment in a sector struggling to find direction.
Analyst David Windley said that while its peers battle maturing products and weak pipelines, Alpharma could add five new drugs by 2012, generating more than $1 billion in sales.
The company's unique business model, in which a strong animal health business generates steady cash flow and funds growth in its pharmaceuticals business, helps insulate Bridgewater, N.J.-based Alpharma from some of the funding issues facing its rivals. Also, the company's drugs address unmet treatment needs _ the company's Flector pain patch has fewer side effects than oral NSAIDs, and its Embeda morphine drug was formulated to lessen the risk of prescription drug abuse.
"With this product suite, we project pharmaceutical segment annual sales will be almost three times higher by 2011, climbing to over $900 million," Windley said in a note to clients.
The company also has substantial cash reserves (more than $600 million), which gives management flexibility to pursue licensing or acquisitions in both drug and veterinary markets.
"Given its track record, Alpharma is rapidly emerging as a partner of choice for smaller companies that have novel products but lack appropriate infrastructure," Windley added.
He has a $33 price target on the stock, implying shares will rise 37 percent in the next 12 months from Wednesday afternoon's trading price of $24.12.
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