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."

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 $118.61 yesterday.

SI NOTE: This report was tagged as 'Hot Downgrade' at StreetInsider Premium given the actionability of the call. StreetInsider Premium members can see more under this category and be alerted to new posts under this category here: http://www.streetinsider.com/Hot+Downgrades

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