Why Seprecor May Surprise The Naysayers

By Mara Der Hovanesian

A Rude Awakening
Sentiment is mixed on Wall Street about Sepracor (SEPR ), the Marlborough (Mass.) pharmaceutical best known for its sleep drug, Lunesta. Launched in April, 2005, Sepracor had $567 million in revenues from the drug last year. This year the figure is expected to hit $685 million. In 2006 Sepracor saw its first year of operating profits--$185 million--and it has accumulated $1 billion in cash. But investors have been punishing the volatile stock, worried that Lunesta's market will be gnawed on by generic rivals. Then on May 21 the stock got hit by news that Medicare would cut reimbursement levels for its asthma drug, Xopenex, which accounts for half the company's total sales. The stock, at 49.07, is down more than 20% this year. Robert Hazlett of BMO Capital Markets (BMP ) says the gloom and doom are overdone and thinks the stock will hit 68 in 12 to 18 months. "This company is growing rapidly, and it's going to be more profitable than analysts estimate," he says. Lawrence Neibor of Robert W. Baird agrees. His 12-month target is 67.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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