BMO Capital Downgrades Valeant Pharmaceuticals (VRX) to Market Perform; Cannot Defend the Specialty Pharmacy Structure
BMO Capital downgraded Valeant Pharmaceuticals (NYSE: VRX) from Outperform to Market Perform with a price target of $141.00, saying they cannot defend the specialty pharmacy structure.
Analyst Alex Arfaei commented, "Based on our understanding, ~10% of Valeant’s revenues come from specialty pharmacies. While other companies also use specialty pharmacies, the structure of Valeant’s network seems different. In the case of Philidor, Valeant consolidates their financials and seems to have a controlling financial interest, while other companies say their affiliated specialty pharmacies are “fully independent.” Valeant’s structure may not be illegal, but we find it aggressive and questionable. However, proof of a questionable business practice is not proof of financial wrong-doing. Our analysis of Valeant’s cash flows does not support Citron’s Enron-like thesis; in fact it supports the opposite conclusion. But we cannot refute Citron’s allegation either. So we’re left with their well-timed allegations, Valeant’s “categorical” denials and audited financial statements that support, but not necessarily prove Valeant’s position. Thus, there is residual uncertainty that may not be fully resolved unless there is an investigation."
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Shares of Valeant Pharmaceuticals closed at $118.61 yesterday.
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