Valeant (VRX) Would Not Be Selling Core Assets if All Was Well - Wells Fargo's Maris
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Wells Fargo analyst David Maris weighed in on Valeant Pharmaceuticals (NYSE: VRX) following reports it may be close to a deal to divest Salix for approximately $10 billion. VRX issued a statement that it is in discussions with third parties for various divestitures including but not limited to Salix. Maris said selling Salix is like selling the stove to keep the restaurant.
"This is the latest in a string of surprising news that we believe is all connected and is more of an acknowledgment of significant challenges rather than a resolution," Maris said. "VRX has confirmed discussions regarding a potential Salix sale; this comes just one day after Bloomberg reported the Department of Justice may be preparing accounting fraud charges against VRX and/or its former executives, and just 2 weeks after the company unexpectedly raised prices on a number of products, including the two largest revenue generators. VRX may be trying to avoid a potential default, knowing accounting fraud charges, class action suits, and pending maturities may significantly outstrip its ability to meet its obligations. In other words, we think VRX would not sell its core assets if things were going well."
If VRX were to sell Salix, they believe the company's growth profile would be significantly reduced as the company would be more levered to its neuro/other products portfolio, which is expected to decline by 20% per year through 2018, and its dermatology franchise, which appears to us to also be in decline, based on current prescription and sales trends.
The firm maintained an Underperform rating and price target range of $17-$22 on the stock.
Shares of Valeant Pharmaceuticals closed at $23.86 yesterday.
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