>ALMIRALL (EUROPEAN STOCK)

Upside from pipeline and licensing

■ Undervalued - upside potential from pipeline and licensing
We believe Almirall is undervalued based on its existing business, with upside possible from potential accretive licensing activity and from upcoming pipeline data. Our €9.30 price objective (12% potential upside from current levels) assumes the stock trades on 11x our ‘10E EPS versus 10x currently. Conservatively, this values the company at a 10% discount to our DCF-derived
valuation of €10. Our valuation assumes no income from potentially accretive licensing deals or positive pipeline newsflow, which represent upside. We maintain our Buy rating.

■ Pipeline catalysts building
In the next 12 months, we expect to see further data for aclidinium, Almirall’s Phase III long-acting muscarinic antagonist (LAMA) for the treatment of chronic obstructive pulmonary disease (COPD, smokers’ cough), including head-to-head data versus currently marketed LAMA, Spiriva (Pfizer/Boehringer Ingelheim) and first data from the new Phase III programme. We also expect full Phase II data for LAS100977, a long-acting beta agonist for the treatment of asthma and COPD, and first Phase III data from a study of linaclotide in chronic constipation.

■ Licensing offers significant upside
Almirall continues to pursue licensing opportunities both within Spain and on a pan-European basis, offering potential further upside to our current valuation. Over the past year, we have raised our 2014E EPS forecast by 9% as a result of four licensing deals the company has signed and, while we have little visibility on timing or scope of any future deals, they are not included in our €9.30 valuation and, thus, represent only upside.

To see full report: ALMIRALL (MERRILL LYNCH)