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Intellipharmaceutics (IPCI) Initiated At 'Buy' By Brean Murray, $7 PT

 September 11, 2012 01:55 PM


(By Balaseshan) Brean Murray, Carret & Co. analyst Jonathan Aschoff initiated Intellipharmaceutics International Inc. (NASDAQ:IPCI) with a "Buy" rating and $7 price target, saying he believes that the company's present valuation does not reflect its opportunity.

Aschoff said his 12-month target price of $7 is based on a discounted cash flow (DCF) analysis, using a 30% discount rate and an 8 multiple of the terminal value for the projected 2022 EBITDA of $168 million that fully factors in the cash needed to become profitable.

The company specializes in extended release (ER) formulations of generic active agents and difficult to manufacture ER formulations of drugs with short remaining patent lives. From the clinical data developed for Rexista, and from other ER formulated drugs successfully produced, the analyst believes that the company can turn a profit by 2015.

The analyst sees several near-term catalysts for Intellipharmaceutics, notably its second Phase 1 Rexista dataset, a potential Rexista partnership, and initiation of Phase 3 Rexista trials.

Positive Phase 1 data for Rexista could lead to a partnership that generates a significant upfront payment, the analyst noted. Also, Phase 3 initiation, expected in 1Q-2013, would clarify Rexista's potential market timing.

The U.S. market for Rexista is large, consisting of about 10 million chronic pain patients who use opioids, with the need for abuse resistant opioids already well recognized. Although about 10 million patients would be candidates for Rexista, Aschoff more conservatively estimates market potential to be equivalent to the OxyContin market in terms of prescriptions written.

The OxyContin market size is about $2.8 billion, and the analyst estimates that Rexista will be able to gain 20% of the 5.2 million OxyContin prescriptions at peak in 2021. He also assumes that other abuse resistant formulations will enter the market, causing Rexista to be priced below OxyContin, resulting in Rexista sales of about $500 million in 2021.

Intellipharmaceutics' generic business has four significant catalysts in 2013, namely potential FDA approvals of generic versions of Focalin XR, Protonix, Effexor XR, and Glucophage XR. The analyst views these products as potentially making the company profitable by 2015.

Aschoff said after these four potential 2013 approvals, the remaining ANDAs awaiting approval beyond 2013 and future ANDA filings should add significant value to the company. Intellipharmaceutics plans to be able to file four ANDAs per quarter starting in 2013.

IPCI is trading up 1.05% at $2.89 on Tuesday.

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