Valeant's Management Continues To Take The Right Steps

Following meetings with the top management of Valeant Pharmaceuticals Intl Inc VRX, Morgan Stanley’s David Risinger expressed confidence that management is “taking the right steps to turn the business around and pay down debt.”

Risinger reiterated an Overweight rating on the company, with a price target of $42.

Growth Drivers

Although the Street has expressed doubts regarding the H2 ramp, management highlighted that both revenue and cost would drive improvement.

Regarding revenues, management stated that the growth levers included “1) Improving derm revenues due to new Walgreens and prior authorization programs starting in early August, 2) Relistor Oral launch likely in September, and 3) back half seasonality.”

Management also acknowledged that Xifaxan continues to be a “work in progress,” given the salesforce turnover and competitive pressures.

Related Link: Mylan Cuts EpiPen Costs By 50%

Cost Control

Regarding cost cuts, management said that Valeant Pharma’s decentralized infrastructure was “built for an M&A machine predicated on speed,” with the new team seeing opportunities to eliminate local redundancies.

Risinger mentioned that COGS improvement has already begun, driven by initiatives such as procurement centralization, while R&D was poised to decline in H2:16, following the “overspending” in H1.

“On SG&A, mgmt. stated that it intends to centralize more costs and that it simply won't spend on businesses that can't generate sufficient ROI,” Risinger went on to say.

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