Analysts Bearish On Valeant With Guidance Cut Predicted

Mizuho analyst Irina Koffler lowered her price target for Valeant Pharmaceuticals (VRX) ahead of results, citing concerns over its eroding asset base and lack of organic growth in front of 2017 guidance. Canaccord analyst Neil Maruoka also voiced a similar bearish opinion, saying he expects the company's guidance to be lowered across the board. Valeant is expected to report quarterly earnings tomorrow, February 28.

GUIDANCE CONCERNS: Mizuho's Koffler lowered her price target for Valeant to $9 from $11, while reiterating an Underperform rating on the shares, citing concerns about the company's eroding asset base and lack of organic growth in front of its expected 2017 guidance. While the analyst acknowledged that the company can deliver a fourth quarter bottom line beat, she remains concerned about Valeant's declining asset base, thin pipeline, and debt burden. Total milligrams of Xifaxan grew 16.5% in 2016 but this trajectory flattened to approximately 2% year-over-year growth in the fourth quarter of 2016, Koffler pointed out, adding that she thinks the brand is slowing and the overall franchise may only sustain low single-digit growth in 2017. Additionally, Koffler sees dermatology also declining, with management hoping for a boost from its pipeline that may take several years. While there seems to be signs of growth from Relistor, the analyst argued that the product is "too small to matter," and it sounds like Valeant may try to sell it. Meanwhile, her peer at Canaccord told investors in a note of his own that he expects the drugmaker's guidance to be lowered across the board. Due to Valeant's high debt load, Canaccord's Maruoka believes investors will be focused on its 2017 EBITDA guidance. Additionally, the analyst pointed out that while Valeant claims to have identified about $8B worth of non-core assets that it could potentially sell to reduce its debt load, this "underscores the challenges of achieving accretive multiples" without giving up growth-driving assets. Maruoka reiterated a Hold rating and $19 price target on the shares.

'OLD VALEANT' REMAINS: Wells Fargo analyst David Maris told investors late last week that he expects history to repeat itself this quarter and for Valeant to provide guidance that is back-end loaded and at risk of downward revisions through the year. Expecting the drugmaker's 2017 to be similar to its 2016, the analyst said he believes the company's shares are "overvalued." Moreover, despite Valeant wanting to talk about ''new Valeant,'' its business trends and pricing-driven model remain ''old Valeant,'' he contended. Maris also pointed out that he expects the company to try to distance itself from the reality of its current business and trends in 2017, to attempt to refinance its debt, and possibly sell more assets. He believes the market is "underestimating" Valeant's poor prescription trends, reliance on price, employee turnover, execution risk on product launches, the impact of patent expiries including Xifaxan, manufacturing issues, and numerous lawsuits including an insider trading suit scheduled for September 2017. Maris reiterated an Underperform rating and $10-$13 price target range on the shares.

TODAY'S NEWS: This morning, Valeant's subsidiary, Bausch + Lomb, and Nicox announced the resubmission of a New Drug Application to the U.S. FDA seeking approval for latanoprostene bunod ophthalmic solution, an intraocular pressure lowering single-agent eye drop dosed once daily for patients with open angle glaucoma or ocular hypertension. Another of Valeant's subsidiaries, Salix, announced that it has "rapidly scaled up" its sales force by nearly 40%, effective immediately. During the past three months, the company has hired approximately 250 highly-trained and experienced sales force representatives and managers to bolster, create and sustain deep relationships with primary care physicians - key potential prescribers of Xifaxan for IBS-D and RELISTOR tablets for opioid induced constipation, the company said.

PRICE ACTION: In late morning trading, shares of Valeant have gained about 2.7% to $16.62. Over the last three months, Valeant shares have fallen about 2%.