Akorn, Inc. (NASDAQ:AKRX) dropped 22% yesterday after announcing the discovery of additional errors related to Hi-Tech products during the first-quarter accounting process, which will delay the company’s quarterly filing. Subsequently, William Blair analyst Tim Lugo came out with his views on the situation.

Lugo noted, “While we are frustrated with the company’s continued issues in integrating Hi-Tech, we ultimately view the improved processes catalyzed by what may be a several-month review process as leading to a stronger company more adept at executing strategic transactions when it emerges from this process. We still view the company as holding a strong pipeline with 87 ANDA filings that account for approximately $8.4 billion in branded revenue.”

Furthermore, “We note the scarcity in the midcap pharmaceuticals sector for diversified companies such as Akorn, and it is difficult to ignore the significant consolidation underway within the sector, particularly with the recent proposals between Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), Mylan NV (NASDAQ:MYL), and Perrigo Company plc (NYSE:PRGO). With Akorn being one of the only companies still paying a full tax rate, we believe significant weakness would make the company a target for acquisition.”

Bottom line: “Despite the issues integrating Hi-Tech, we continue to look beyond these issues and are reminded of the scarcity of assets in the midcap pharma space, the significant pipeline at the company, and an extremely active overall M&A environment in the specialty space. We therefore maintain our Outperform rating on shares; however, we understand that shares will likely be capped until this process is complete and the company announces its restatement.”

The analyst maintained an Outperform rating on AKRX, with a price target of $58, which implies an upside of 23% from current levels.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Tim Lugo has a total average return of -3.5% and a 43.8% success rate. Lugo has a 34.2% average return when recommending AKRX, and is ranked #3133 out of 3581 analysts.

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