There’s been an epidemic of M&A activity in the pharmaceutical sector lately. More than $100 billion in deals took place in the last quarter, not counting the AstraZeneca megadeal that fell apart. It looks like acquiring companies are willing to pay hefty premiums for new drugs in search of the next blockbuster and that may mean a booster shot for Orion Corp. (ORNBV.HE).
The Finnish drug maker said on June 2 that it struck a deal with Bayer to develop a prostate cancer drug. Orion will receive an upfront payment of 50 million euros ($68 million) Orion and Bayer will develop the new drug together, with Bayer contributing a major share of the development costs, reported Reuters. Bayer would sell the product globally, and Orion said it was eligible for substantial royalties. It can also receive payments as development of the drug progresses.
That is likely to boost Orion’s profits for this quarter and also help create a steady revenue stream down the line, with minimal risk. Based on the 6% positive StarMine Predicted Surprise, it looks like Orion is likely to beat quarterly estimates when it reports earnings on July 29.
Source: Eikon/StarMine
Healthy outlook
Analysts appear bullish on earnings prospects for Orion and have increased their estimates for the company, with the current quarter earnings consensus now at €0.36 per share. That’s up €0.03 over the last 90 days. The StarMine SmartEstimate, which puts more weight on the latest estimates and the most-accurate analysts, is higher at €0.38. Analysts have also raised estimates for the whole year by more than €0.15 with the expectation that the deal with Bayer will help earnings.
Source: Eikon/StarMine
Tasty medicine
Orion has generated strong cash flow from operations. In the first fiscal quarter, cash flow from operations was just under €50 million, the highest for a first quarter in more than five years.. The quarter before that saw the highest cash flow from operations in more than five years at €84 million. Cash flow is likely to remain strong as Orion receives milestone payments from Bayer.
Source: Eikon/StarMine
Nursing value
Orion does not appear cheap. The stock has appreciated more than 30% in the last three months, and at the current levels, the common forward valuation ratios seem to be quite a bit higher than the 10-year medians. Given the M&A activity in this space, maybe that premium is a takeover premium. Orion may go some way in justifying those rich valuations by putting an earnings beat in the test tubes this quarter.
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