UPDATE 1-UBS starts specialty pharma sector with positive view

March 13 (Reuters) - UBS initiated coverage of the
specialty pharmaceuticals sector with a positive outlook,
saying the group will have solid earnings growth and will look
attractive relative to other sectors.

UBS said it was cautious on the branded pharma industry,
but added that it expects 2009 to be a critical inflection
point for the sector, with significant deal flow.

UBS sees opportunities for specialty pharma companies to
boost their pipelines with products, from small companies, that
have sales potential of less than $300 million.

"Now is the opportunity for specialty pharma companies to
take more risk to capture earlier-stage assets. The sector must
make the transformation to more of an R&D-focused company to
sustain growth in this new industry environment," UBS said in a
note dated March 12.

The major players in the specialty pharma space --
Allergan, Forest, Cephalon, Sepracor, Biovail, and Medicis --
have cash and the desire to in-license new products, the
brokerage said.

In the branded sub-sector, UBS favors Alcon, Allergan,
Biovail, Cephalon and Warner Chilcott. In generics, UBS
recommends exposure to the sector through Teva and Mylan.

Following are the initiations UBS made:
COMPANY RATING PRICE TARGET
Alcon Inc (ACL.N) Buy $111
Allergan Inc (AGN.N) Buy $48
Biovail Corp (BVF.N) Buy $14
Cephalon Inc (CEPH.O) Buy $76
Forest Laboratories Inc (FRX.N) Neutral $21.50
King Pharmaceuticals Inc (KG.N) Sell $5
Medicis Pharmaceutical Corp (MRX.N) Neutral $11
Sepracor Inc SEPR.O Neutral $15
Warner Chilcott Ltd (WCRX.O) Buy $14

Following are the stocks UBS assumed coverage on:
COMPANY RATING PRICE TARGET

NEW OLD NEW OLD
Mylan (MYL.O) Buy Buy $16 $14
Teva Pharmaceutical (TEVA.O) Buy Buy $52 $58
Watson Pharmaceuticals <WPI.N Neutral Buy $28 $33
(Reporting by Jennifer Robin Raj in Bangalore; Editing by
Himani Sarkar)