UPDATE: Eventually Valeant (VRX) Fundamentals Will Matter Again - UBS
(correction: price target is $255)
UBS analyst Marc Goodman reiterated a Buy rating and $255 price target on Valeant Pharmaceuticals (NYSE: VRX) following yesterday's business update. The analyst said eventually fundamentals will matter again. Goodman listed 6 takeaways from the call:
(1) Regarding the controversial derm biz that went through Philidor, the strategy is to protect volumes with price, but mgt fully expects significant ST sales disruption in 4Q (especially with Jublia and Solodyn). It hopes to have a new spec pharmacy/access program in place in the next 90 days (which may be a surprise to some given the recent anxiety in the investment community on specialty pharmacies but not to us). It also noted that its derm products are currently available at other spec pharmacies and retailers. Once the newer program is up and running, it expects the biz to recover in 2H16.
(2) The neuro biz would also have a short-term impact, as mgt is offering large discounts to hospitals to protect volume on the two Marathon products. Thus, it expects a 20% hit Q/Q (i.e., $85M down to $68M). <5% of Wellbutrin XL went through Philidor, so we shouldn't expect much of an impact.
(3) The rest of the company should have good organic Y/Y or Q/Q growth.
(4) Inventory levels over the past 7 years have been largely consistent, and the current levels for most of the biz are actually below a year ago and even industry standards. Poland and Russia are a little higher
(5) In the near term, de-leveraging is a priority and cash flow is expected to go largely to pay down debt (incl the revolver)
instead of share repo.
(6) Mgt expects to file brodalumab later this month
On the stock, the analyst is taking Q4 down again from $3.90 to $3.58 (was $4.03) on plans to abandon Philidor and FY 2016 EPS from $14.60 to $14.30 (was $15.80). That said the firm said things aren't that bad. He said the key to boost investor confidence will be when Valeant provides 2016 guidance on the December conf call.
For an analyst ratings summary and ratings history on Valeant Pharmaceuticals click here. For more ratings news on Valeant Pharmaceuticals click here.
Shares of Valeant Pharmaceuticals closed at $83.68 yesterday.