What do specialty pharmaceutical company Depomed Inc (NASDAQ:DEPO) and biotechnology company Celgene Corporation (NASDAQ:CELG) have in common? Both stocks have recently received bullish outlooks from analysts weighing in. While DepoMed is battling against shareholders to secure its board, Celgene is boosting key brand prices. See how these company decisions are positively effecting stock valuations.
Shareholder Starboard Value, a New York based hedge fund, is currently attempting to out the DEPO board, but according to Cantor analyst Chiara Russo, this will not come easy for the activist. Russo remains bullish on DEPO, and has reiterated a Buy rating on stock recently with a price target of $26.00.
Last week, Starboard Value disclosed a 9.8% ownership in DEPO, with intentions to call a shareholder meeting and vote for a change in board members. Starboard claims that DEPO’s corporate governance is not in the best interest of shareholders. Russo sheds some insight on this noting, “For all intents and purposes, we feel Starboard is a first-rate activist investor, however we contend that this will not be an easy road. We believe that DEPO has been transparent with their investor base (top 15 own 60%) about these changes and would not have gone through with the filing without first receiving consent.” The analyst elaborates further claiming, “We still like DEPO as a stand-alone, though we believe that 1Q revenue may be below street consensus.”
Starboard is accusing DEPO of taking advantage of the reincorporation to change company bylaws, mentioning further that “they have done so in a back-handed manner by burying language in the Appendix.” Russo shares her opinion noting, “Yes, we agree that the optics aren’t great. However, to bury something that could potentially have such negative consequences without informing investors doesn’t add up in our book.”
In response to this, DEPO has proposed some changes. They include, increasing the requirement to call a special meeting from 10% to 25%, eliminating the ability of shareholders to call a special meeting for the purpose of removing board members (with shareholders unable to request a special meeting within 180 days of an Annual Meeting), and finally, DEPO being able to enact the reincorporation at any time prior to the 2017 Annual Meeting.
Clearly, DEPO is making matters quite difficult to out the board. Russo mentions, “We believe that DEPO has no interest in the hostile takeover and is protecting itself from the possibility. We also note that during the HZNP bid, three proxy advisors supported the special meeting, but ultimately reversed course on the bid.” She further retorts, ” It is also our understanding that Starboard has only just started talking with shareholders, and quite frankly we think this is a different base than they are used to.” The analyst mentions she is confident that DEPO has been upfront with their shareholders, and that the majority remain loyal and supportive of the company’s CEO.
The Annual Meeting is scheduled to take place on on May 18th. The upcoming meeting is said to include a vote on the reincorporation. The Board of Directors vote will take place at a second meeting scheduled for some time during the next few months. Russo explains, “In order for Starboard to nominate Directors on this vote, the group would have needed to nominate in December. We do anticipate Starboard requesting a special shareholder meeting in the future, though we are unsure of the timing.”
According to TipRanks, Chiara Russo has a 42% success rate recommending stocks with an average loss of 10.6% per recommendation. Out of the 8 analysts who have rated the stock in the past 3 months, 6 gave a Buy rating while 2 remain on the sidelines . The average 12-month price target for the stock is $23.83, marking a 40.59% upside from where shares last closed.
Celgene has recently undergone company updates and price hikes for two of its major disease treatments; Otezla and Abraxane. Eric Schmidt, Ph.D. and analyst at Cowen & Co., has recently weighed in on the stock reiterating an Outperform rating with a $150.00 price target.
The company’s decision to raise prices on its key brands, Otelza and Abraxane, is not a particularly new occurrence. Celgene has taken early 2016 price increases on key brands Revlimid and Pomalyst as well.
Celgene increased U.S. prices of Otezla and Abraxane effective April 4. Otezla’s change in price represents a 7.8% increase, with previous hikes for the treatment being 8% in January and 9.8% in June 2015. Combined, the price hikes of Otezla represent a total increase of ~17% in 2016 compared to the average price in 2015.
Abraxane experienced a price hike of 1.8%, previously increased 2.5% in January and 5% in July 2015. These price changes indicate a ~6% greater price for Abraxane in 2016 compared to the average price in 2015.
Schmidt describes the reasoning behind his price expectations, explaining, “Our model accounted for a 3% Y/Y increase in drug price. Celgene has signaled that its 2017 EPS guidance of $7.25 may be too aggressive, and we expect the company to provide updated guidance on its April 28 earnings call. While we have already modeled lower 2017 EPS ($6.95), a series of aggressive price increases in early 2016 could mitigate or even eliminate the need for consensus estimates to be reduced.”
In regards to company shares, the analyst further mentions, “We expect CELG shares to rally into and out of the company’s Q1 earnings call as this major stock overhang is relieved.”
Eric Schmidt has a 50% success rate recommending stocks with an average return of 16.7% per recommendation.
According to TipRanks, based on 13 analysts offering recommendations for CELG in the last 3 months, the overall consensus is a Strong Buy, with 12 analysts recommending a Buy. The average price target for the stock is $148.67 with a 39.9% upside.