I have previously listed five stocks that I believe will perform well in 2020 and will update on those next week. But now I am adding a sixth name to the list.
Recro Pharma Inc. (REPH) is what is known as a CDMO, which stands for Contract Development and Manufacturing Organization. REPH makes drugs that are sold by other companies such as Ritalin LA for Novartis (NVS) .
One of its main drugs is Verapamil SR, which treats high blood pressure. This is a generic medication that is made for Teva Pharmaceuticals (TEVA) . Teva has gained substantial share after competitor Mylan (MYL) closed its plant due to quality control issues. This product is about half of REPH's revenue. REPH has a profit-sharing agreement and benefits from increased prices.
At the end of the third quarter, Ryan D. Lake, the CFO of REPH commented, "The business is really strong. It is doing great. You saw earlier this year, we are able to walk into five- and six-year agreements with our major core commercial customers...."
Until recently the CDMO business of REPH has been unappreciated, as it had another division engaged in the development of acute-care drugs. Twice it had an IV form of one drug rejected by the Food and Drug Administration. This division was spun off recently into Baudax Bio (BXRX) . BXRX has an FDA decision coming on Feb. 20 for its Meloxicam IV for severe pain. This is a different story and now that it has been separated, the CDMO business is now the main focus.
The CDMO aspect of the business has consistently beat expectations and has been the source of funds for drug development. Revenues should grow about 18%-20% in 2020 and see increased margins. The stock is trading below CDMO multiples and has better growth. Some consolidation in the CDMO industry is expected. The chairman of the board of REPH manages an activist hedge fund.
I'm looking for a solid fourth-quarter report and strong guidance to move the stock. It is thinly traded and tends to move erratically at times