On Monday, Morgan Stanley (NYSE:MS) initiated coverage on Kaken Pharmaceutical (TADAWUL:2070) Co Ltd (4521:JP) stock, assigning an Overweight rating to the company’s stock with a price target of ¥6,100. The firm's analysis suggests that despite the looming loss of exclusivity (LOE) for Kaken's main product, Clenafin, in February 2025, the company's prospects as a new drug growth stock are promising.
The analyst noted that the expected decline in near-term earnings due to Clenafin's patent expiration is already reflected in the company's current price-to-book ratio of 1.06x. The focus is now shifting to Kaken's potential as a growth entity in the pharmaceutical sector, given its pipeline of new drugs.
Kaken has been cautious in its growth investments following the successful launch of Clenafin. However, a change in management in 2020 marked a strategic shift towards expanding its new drug portfolio. The analyst forecasts that if two of Kaken's new drugs reach the market and become growth drivers by the fiscal year 2027, they could compensate for the impact of Clenafin's patent expiry.
The optimistic outlook is supported by the analyst's projections, which include an operating profit contribution of ¥12 billion in the fiscal year ending March 31 from two new drugs.
These drugs are deemed to have high chances of success based on clinical data, with one already approved in the United States, and trial designs. For comparison, the operating profit in the fiscal year ending March 2024 was ¥9.5 billion.
The analysis by Morgan Stanley indicates confidence in Kaken Pharmaceutical's ability to navigate the challenges ahead and capitalize on its new drug developments.
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