Akorn Upgraded By Piper Jaffray On Improved Cost Structure, Product Potential

A closer look at Akorn, Inc. AKRX's generics business led Piper Jaffray to turn bullish on the drug manufacturer's stock. 

The Analyst

Analyst David Amsellem upgraded Akorn from Neutral to Overweight and raised the price target from $5 to $9.

The Thesis

Akorn's EBITDA has declined abruptly since 2015, from more than $450 million to roughly $110 million, Amsellem said in the upgrade note. (See his track record here.)

The drop was largely driven by limited-competition products and brand-like margins, despite the company’s primary focus on ophthalmics and injectables that have positioned it in other areas of the space, the analyst said. 

Akorn's operating margins in 2017 were 24 percent before declining to 12 percent in the first half of 2018, Amsellem said.

“Larger U.S. generics companies such as Endo International PLC ENDP and Amneal Pharmaceuticals Inc AMRX, both of which certainly have exposure to commodity products, are running at 2018 operating margins of closer to 29 percent (excluding Vasostrict and key brand products) and 25 percent, respectively.”

The other factors behind Piper Jaffray's bullish stance on Akorn are as follows, the analyst said: 

• An improved cost structure following the termination of the Fresenius transaction.
• Increased signs of stabilization.
• An improved product concentration, notably with the company’s Accutane generic.
• The potential from complex ophthalmic products that have yet to be announced.

Price Action

Akorn shares were trading up nearly 3 percent to $6.91 off the open Wednesday. 

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