EFTA01192826.pdf

Deutsche Bank Markets Research r4 Rating Company Date 27 May 2015 Buy Retrophin Breaking News North America United States lieuter, Wveramrty Lxc•.mge Ticker Price at 26 May 2015 (USD/ 26.87 Health Care RTRX.00 RTRX US NMS RTRX Price target 52.00 Biotechnology 52-week range 26.98 - 8.09 Agrees to sell PRV for $245M, new TP Robyn Karnauskas Research Anal t of $52 Retrophin agrees to sell its PRV to SNY for $245M• new TP of $52 This morning RTRX announced that it plans to sell the rare pediatric priority Even Seigerman review voucher acquired with the approval of Cholbam to Sanofi for $245M. Research Associate The company will receive $150M when the deal closes (no timing was provided by the company; we assume at some point during 3Q15), and two additional payments of $47.5M in 2016 and 2017. The company has previously disclosed that it plans to use the proceeds for its late-stage pipeline and/or for Mohit Banal business development. We are raising our TP to $52 to account for the transaction. Reiterate BUY. Research Associate Prior vouchers sold for $67.5M and 5125M. This is the highest price paid for a voucher to our knowledge and demonstrates their scarcity. We note that UTHR is the only other company to have one of these vouchers in its possession. I Key changes Price target 50.00 to 52.00 4.0% The company sold the voucher for $145M over our projected sale price of EPS (USD} 0.96 to 1.65 1 71.5% $100M. A sale of $100M was worth approx $1.4/sh to our DCF. The additional &KAM &MOM.BIM $145M is approx $2/sh to our DCF. Reiterate BUY, new TP of $52. Valuation and risks: I Price/price relative We value RTRX using a probability-adjusted DCF analysis with a 10% discount rate. We extend our estimates to 2029 and use a 2% terminal growth rate. Risks: 1) Base business sales risk, 2) Sparsentan / other pipeline products fail, 3) Regulatory risk, and 4) Reimbursement risk. -— 54P 60)Mt% IRebeeedl Performance (GM 1m 3m 12m Absolute 8.6 80.3 95.7 S&P 500 INDEX -0.6 -0.3 10.7 &vett Dived...O&M Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. EFTA01192826 27 May 2015 Biotechnology Retrophin Model updated:27 May 2015 Fiscal year end 31-Dec 2014 2016E 2018E 2017E Running the numbers [Financial Summary North America 08 EPS (1.150) -2.51 1.65 1.00 1.08 Repatod EPSIUSD) 0.84 0.63 2.13 2.19 United States CPS IUSDI 0.00 0.00 0.00 0.00 Biotechnology BVPS (USDI -L49 Q07 7.88 9.86 [Valuation Metrics IRetrophin Price/Sales (x) 11.2 11.6 8.0 5.9 Reuters: RTFOCOO Bloomberg: RTRX US PPE IDB)Ixl rim 16.3 26.9 24.8 PPE (Reported) 00 16.0 42.6 12.6 12.3 WEN lx1 rim 4.4 3.4 2.7 IBuv FCF yield I%) 29.3 4.9 13.7 13.2 Price 126 May 15) USD 26.87 Dividend yield t%} 0.0 0.0 0.0 0.0 Target Price USD 52.00 EV/Sales 10.2 8.3 5.0 3.3 52 Week range USD 8.09 - 26.98 EWEBITDA 11.0 9.4 5.8 3.8 EWEBIT 11.0 9.4 5.8 3.8 Market Cap fm) USOm 949 [Income Statement (USDm) EURm 871 Sales 28 el 119 160 Company Profile EMMA 28 72 103 136 €BIT 28 72 103 136 Retrophin is a biophammasutical company focused on Pottax profit 29 72 103 136 discoverMg, develocMg and marketing innovative Net inane 31 30 103 108 therapies for debilitating and often Me-threatening diseases. [Cash Flow (USDm) 29S20M2i,* Cash flow from operations 6 139 137 Not Capes -4 Free cash flow 4 13 133 Equity raisedflbougM backl 15 Dividends paid 0 I Price Performance Not incr(doc) in tomawMgs 0 Other investimilinancing cash flows 0 20 Not cash flow 19 13 133 24 Change in worldly cooks! 2 20 16 [Balance Sheet (USDm) 12 8 Cash and cash equivalents 18 262 342 420 4 Property, plan 8 equipment 1 s 8 1I 0 Goodwill 0 0 0 0 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Other assets 117 109 109 109 Toted assets 136 376 469 601 Reeerem SW 600 111a€X late n. Debt 0 0 0 0 I Margin Trends Other liabilities 173 161 171 173 Total liabilities 173 161 171 173 Total shareholders equity -37 214 288 368 Nee debt -18 -262 -342 -420 [Key Company Metrics Sales growth 0%) ren 189.0 463 318 08 EPS growth PM na -39.4 8.2 14 16E 166 17E Payout ratio OS/ 0.0 0.0 0.0 0.0 ~ FERO.Mina ~EXIT Marais EBITDA Margin 041 92,8 88.0 86.7 85.5 €BIT Marge, I%4 92.8 88.0 86.7 85.5 Growth & Profitability ROE I%) rim 33.8 412 32.9 200 so Not debt/equity PM ten -122.2 -118.8 -114.3 160 40 Not interest cover Ix) ten am nm nm 30 100 [DuPont Analysis 20 60 €BIT margin 6%) 92.8 88.0 86.7 85.5 10 x Asset tutova 120 0.2 0.3 0.3 0.3 0 0 x Fmanciel cost ratio ix) 1.0 1.0 1.0 1.0 x Tax and other effects 00 1.2 0.4 1.0 0.8 sass ammar Had, ~ ROE Ota0 ▪ ROA (post tax") 22.9 11.7 24.8 21.6 x Fmanciel leverage (xl .3.6 2.9 1.7 1.6 Solvency ▪ ROE 1%) -83.2 33.8 412 32.9 annualgrowth 1%) no no 22.9 -201 0 111 x NTAfthare lavg) Ix) -1.0 Is 52 6.7 -zo -40 ▪ Reported EPS 0.84 0.63 2.13 2.19 -CO annualgrowth f%) no -24.6 237. I 27 .90 -100 Source: Company two Deutsche Bonk estimates -120 -140 14 156 166 176 clabibissty 0-XSI ~Ns entreat cow" iRXS" Robyn Kamauskas •1 212 260-7591 Page 2 Deutsche Bank Securities Inc. EFTA01192827 27 May 2015 Biotechnology Retrophin RTRX DCF I Figure 1: RTRX DCF 8 BIOTECH: RETROPHIN DCF DCF = $52 12.250.7591. DB BIOTECH: RTRX- DISCOUNTED CASH FLOW WISE 70161 70173 70181 70191 70101 70711 20771 70711 20711 707..1 10/0 70771 70771 70791 a.c.? )4/ 51/ 54I 1574 575* Sias $453 531.1 $750 5.1.3 Ss4b Ai 5•510 553 ins In 1544/ 50 1520) (5151 15611 (571) 151071 15144) 151851 (52111 151011 151111 1$191) 152041 15123) nowt 350% 00% HOW 35 0N 350% 350% 1501$ 350% 3501. 350% 350% 350% 350% BO% 350?) 3031= SO SO $1 $1 51 52 52 52 52 12 53 53 53 53 53 Int Net veoth to caul RI/ $10 $2 511 se 51 $12 sil 512 511 OM 15671 $0 50 ISII) less Capital 004006063 (531 1541 (541 1541 (RI 154/ (541 (54 1541 IR/ 1541 (541 1531 1541 MP 00..7.$6 FR CoinRI. $76 555 SR 536 $119 5141 $214 5279 $$4 UM 5550 5207 5366 5373 5216 RAS Gnwth ISM nit% II% 51% 31% V% St% MC 44% 24% 3% OM 1Nscount•eno4 0 975 395 2.75 3.75 4.75 575 6.75 775 975 975 1075 11.75 1275 1375 33.75 Damon tint.. 100 093 025 tl 7? 010 064 0.59 053 042 045 OR 0.36 033 COO 017 027 hewn yaw 04 (0111003 $76 SO $W RS $OO $90 $133 $147 $169 WO $237 $103 1119 5117 Terminal growth rata a 2 0' Discount Rate Nry4.l, 51.612 NW NISUI 5751 Nry Tow 52364 Nei CasNlOtliti Nei cnaissore $2 SI Shin Jwmll.Y who TV as% of UPI who NPVC3sh Flows • TV $52 Show outrthendow 47 SanerDaman Rine 1 Deutsche Bank Securities Inc. Page 3 EFTA01192828 27 May 2015 Biotechnology Retrophin RTRX P&L 'Figure 2: P&L •••••••••••• . , We N 0. EN Aelayei me •••••••••••••••de li• PP. 540 00 e 00 00 WV Jar Pim le tin let Cal /01 san WM el el We e 0.0 PE n •••• I% In SI% a in. In IN T. E0 IN F F Owe 01 II /Me 0. fiS N /0. P.. n 00 00 M. M. IF IF F 0/ n IS IS IS Wee • V V la • 10 e 50 la W IN we Oa P• Pm Wm PI IIN I= 50 MS le el Vele ••••••• Sees a WO a IP Ill0 INO •0 OS a a us •• in a a in et is a a a .4. m 46 a a a a a. aa• ••••••••••• Pee Nye/ Men e e *0 00 00 0, IF W. /V/ NS /1// PF PF ••••••••••••• Wm • Mee =WWI MI • le• s IL ••••••••••••• 0/ 10 10 If SW Id IIIII 00 00 NO /70 0014000•000 450 in in in IN IN IF MS MS OF a ••••••••••••••••• NI Os Oa ii• a In In Om ii• in no Oe te VI In F. IF 0. 5/0 0/ 0/ 0. 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MM MI .1 la a la int II ,......... . . .. .. .. ..• i, .., r .. ... ... ,... ., ,,- ,... . . ... ... ... .. ... ... 2.. 2.. .. .. ., .. ., ., ... .......... ../ 'J. .. .. . .. .. ... .. .. .. .. ... .. .. sc. ... ......-.. . . . . ..—. . . , . C • 0 • • 0 0 0 0 • • • • Stint AMMON Bate Page 4 Deutsche Bank Securities Inc. EFTA01192829 27 May 2015 Biotechnology Retrophin Appendix 1 Important Disclosures Additional information available upon request Disclosure checklist Company Ticker Recent price' Disclosure Retrophin RTRX.OQ 26.87 (USD) 26 May 15 1,6,7,8,9 •prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters. Bloomberg and other vendors . Other reformation is sourced from Deutsche Dank, subject companies, and other sources. For disclosures pertaineg to recommendations or estimates made on scarifies other than the primary subject of this research, please see the most recently published company report or visit our global disclosure lookup page on our website at httpfigrn.db.comigeddisclosuro/DisclosureDirectomodsr. Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees. 6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months. Important Disclosures Required by Non-U.S. Regulators Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes. 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees. 6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by India law. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at tiffp://qm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=RTRX.OQ Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Robyn Kamauskas Deutsche Bank Securities Inc. Page 5 EFTA01192830 27 May 2015 Biotechnology Retrophin IHistorical recommendations and target price: Retrophin (RTRX.OO) /as of 5/26/20151 30.00 Previous Recommendations Strong Buy 26.00 Buy Market Perform Underperform 20.00 Not Rated Suspended Rating 8 Corrnnt Reenmmenrintinr6 16.00 Buy Hold 10.00 Sell Not Rated Suspended Rating 6.00 'Now Recommendation Structure as of September 9,2002 0.00 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 6%14 Jun 14 Sep 14 Dec. 14 Ma; 16 1. 0408/2015: Upgrade to Buy, Target Price Change USD50.00 Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total 600 share-holder return (TSR = percentage change in 5420 share price from current price to projected target price 4C0 plus pro-jected dividend yield ) , we recommend that investors buy the stock. 3420 Sell: Based on a current 12-month view of total share- 2C0 holder return, we recommend that investors sell the ICO stock 0 Hold: We take a neutral view on the stock 12-months Buy Hold Sell out and, based on this time horizon, do not recommend either a Buy or Sell. •Companlee Covered •Cos. w/ Banking Relationship Notes: North American Universe 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12- month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period Page 6 Deutsche Bank Securities Inc. EFTA01192831 27 May 2015 Biotechnology Retrophin Regulatory Disclosures 1.Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at under the "Disclosures Lookup" and "Legal tabs. Investors are strongly encouraged to review this information before investing. 2.Short-Term Trade Ideas Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://qm.db.com. Deutsche Bank Securities Inc. Page 7 EFTA01192832 27 May 2015 Biotechnology Retrophin Additional Information The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness. Deutsche Bank may consider this report in deciding to trade as principal. 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The appropriateness or otherwise of these products for use by investors is dependent on the investors' own circumstances including their tax position, their regulatory environment and the nature of their other assets and liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar Page 8 Deutsche Bank Securities Inc. EFTA01192833 27 May 2015 Biotechnology Retrophin to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable for all investors. 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