Maxim Group downgraded Radius Health (NASDAQ:RDUS) to “sell” from “hold” with a $24 price target. The stock closed at $50.55 on Thursday.
“At the current valuation, we believe that Radius is back to an overvalued state,” writes analyst Jason McCarthy.
“While we continue to believe that Abaloparatide-SC (and eventually the transdermal patch) will likely gain approval in 2017 in both the U.S. (PDUFA March 30, 2017) and Europe (EMA opinion early 2017), we believe significant challenges lay ahead in penetrating a mature Forteo market, competition from biosimilar Forteo in 2018 (from Teva) and patients opting for alternative therapies,” he added.
Mr. McCarthy said an anabolic daily injectable like Forteo (and eventually Abaloparatide) is typically a “last resort” option for patients, most of whom are older and frail. “As such, we do not see Radius expanding this market beyond what Lilly has achieved with Forteo, based on what we believe are only incremental improvements.”
Given Abaloparatide’s potential to take Forteo market share, which generates $700-million in the U.S. and EU, and factor in 50% market share for Abaloparatide, which is aggressive, “we believe using three-to-five times revenue as fair value, at a $2.3-billion valuation, that Radius is overvalued,” Mr. McCarthy said.
“If we then consider that in 2018, a generic Forteo enters the market from Teva, and other players in the space like Amgen continue to offer potentially more effective and more patient-friendly options like Prolia, or a once-a-month anabolic antibody in romosozumab (pending approval), there is additional risk to how much revenue Abaloparatide can generate,” he added.
What’s the risk to the “sell” rating, Mr. McCarthy asked? “We may see some short-term excitement as we head towards approval, in our view. We believe that it will be short lived as the focus shifts from approval risk to commercial risk and revenue trajectories disappoint.”
