UBS Starts Depomed At Buy, Says Nucynta Has More Potential Than Market Thinks

• The share price of Depomed Inc (NASDAQ: DEPO) has appreciated 2.27 percent over the last one month, while rising almost 4 percent in morning trade on February 9.
• Ami Fadia of UBS has initiated coverage of the company with a Buy rating and price target of $22.
• Feedback from physicians suggests that the Nucynta franchise could have the potential of higher peak sales that expected by the Street.

Analyst Ami Fadia believes that at the current levels, the stock “offers a wild card on cebranopadol, a potential franchise extension to Nucynta,” while expecting sales CAGR of 15 percent during 2016-2020, which would drive non-GAAP EPS CAGR of 20 percent.

“We expect to see multiple expansion as management continues to execute and investors get comfortable with Nucynta's growth potential,” Fadia mentioned.

According to the UBS report, the Nucynta franchise has the capability to grow to sales of more than $400 million by 2018, with a peak of over $600 million before generics enter the market when the composition of matter patent expires in February 2023.

“We think the remaining >$140M base business is sustainable well past 2020, and that Depomed can continue to grow these products double digits over the next 5 years to reach >$300M in sales by 2020,” Fadia noted.

In addition, Depomed’s robust balance sheet and cash flows are likely to allow management to add further growth drivers via business development.