Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

We are reverting to a Neutral recommendation on Warner Chilcott plc from Outperform as we believe that the stock is fairly valued at current levels with limited upside potential from current levels. Our target price is $15.00.

Why the Downgrade?

Warner Chilcott’s revenues declined 5% in the fourth quarter of 2012. Revenues were hurt by generic competition faced by products such as Actonel (osteoporosis) and Doryx (dermatology).

On Apr 30, 2012, a US district court issued a verdict regarding Mylan, Inc. (MYL - Analyst Report) and Impax Laboratories’ (IPXL - Snapshot Report) applications to the US Food and Drug Administration (FDA) to sell their respective generic versions of the drug. The court ruled that the generic versions of neither of the companies infringed the patent of Doryx. Following the verdict, Mylan has entered into the US market with its generic version of Doryx 150 mg. The generic threat is expected to intensify in the coming years. The genericization of key products will make it challenging for the company to drive the top line.

We are also concerned about the weak late-stage pipeline at Warner Chilcott with erectile dysfunction candidate Udenafil being the only late-stage candidate. Given the generic competition faced by the key drugs at Warner Chilcott, the pipeline must deliver. Generic competition is likely to intensify further at Warner Chilcott going forward. Consequently, the lack of a decent late-stage pipeline is a matter of concern.

In Mar 2012, Warner Chilcott received a warning letter from the FDA regarding its Fajardo facility in Puerto Rico for its oral contraceptive Ovcon 50. Even though the company responded to the warning letter in Apr 2012, we believe that any slip on the company’s part to comply with the FDA’s quality control requirements will invite strict action from the US regulatory body. Such an action will weigh heavily on the stock.

In view of these challenges, we see limited upside potential from current levels and hence downgrade the stock to Neutral.Warner Chilcott carries a Zacks Rank #3 (Hold) in the short run.

However, Lannett Company, Inc. (LCI - Snapshot Report) is favorably placed in the pharma sector. The stock carries a Zacks Rank #1 (Strong Buy) and is worth considering.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GROUP DXYN 15.84 +7.90%
BOFL HOLDING BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%