Market Overview

These Four Analysts Remain Bullish On Valeant

  • Shares of Valeant Pharmaceuticals Intl Inc (NYSE: VRX) collapsed to a new 52-week low of $88.50 on Wednesday before slightly rebounding but have still lost more than 50 percent over the past three months..
  • Citron Research published what it considered to be a "smoking gun" report on Wednesday which the company publicly responded to.
  • Many Wall Street analysts maintained a bullish stance on Valeant following Citron's report.

Shares of Valeant plunged to new 52-week lows of $88.50 on Wednesday after Citron Research said that it has published a "smoking gun" report detailing why the company is the "pharmaceutical Enron." The company defended its publicly, noting the report is "erroneous."

Shares of Valeant remained volatile after Thursday's opening bell. The stock was lower by more than 10 percent and dipped below the $100 per share mark. Investors and traders found little confidence in the company despite notable Wall Street analysts defending the company and reaffirming bullish ratings.

JPMorgan: ‘No Impact' From Headlines

Chris Schott of JPMorgan commented in a note that specialty pharma represents only 10 to 15 percent of Valeant's US sales. Specifically, the company commented that approximately 50 percent of jublia sales, 30 percent of Solodyn sales, and 10 to 20 percent of the remainder of its dermatology division are distributed through specialty pharmacies.

Schott continued that it is his "understanding" that Valeant books revenue upon shipment to end customer, limiting the ability to "stuff the channel" using the specialty pharmacies that the Citron report noted. The analyst added that Valeant has disclosed that it recognizes almost all of its revenues generated through the specialty pharmacy channel when the prescription is filled, and the specialty pharmacies operate on a consignment model.

Schott added that Valeant currently has $15 million of inventory at gross price in the US specialty pharmacy channel. Accordingly, this "limits the ability" of Valeant to "stuff the channel" by shipping excess inventory to its specialty pharmacies as doing so would not be recognized as revenues.

For context, Schott explained why Valeant would use specialty pharmacies to distribute its products:

"Specialty pharmacies have been selectively used in certain therapeutic markets as an alternative to traditional distributions. This allows the pharmaceutical company to pay a lower distribution fee (which is relevant for drugs with a high gross-to-net discount) and also alleviates some physician concerns around potential reimbursement issues. Through this channel, products are distributed immediately and Valeant takes on reimbursement risk in the case that the product is no covered by insurance as well as collection risk from these smaller pharmacies."

Bottom line, Schott sees "effectively no impact" from the headlines to other companies within his coverage who generally do not have specialty pharmacy arrangements like Valeant has structured for its dermatology franchise.

Shares remain Overweight rated with an unchanged $265 price target.

UBS: ‘Unusual' Buying Opportunity

Marc Goodman of UBS pointed out in a note that shares of Valeant recovered some of its earlier losses on Wednesday after the company issued its comments. The analyst added that "we believe as investors fully incorporate Valeant's comments, shares will recoup more ground."

Goodman continued that Valeant's public remarks to defend itself from Citron's report "addressed most of these issues." The analyst also noted that he was "surprised" that Citron's report "generated such a reaction," although he did acknowledge that investors are "extra cautious" and continue employing a "sell first and ask questions later" philosophy.

Bottom line, Goodman suggested that "as questions are answered, we expect the stock to recoup lost ground."

Shares remain Buy rated with an unchanged $285 price target.

Bank Of America: ‘We Are Not Changing Our Model'

Sumant Kulkami of Bank of America commented in a note that "we are not changing our model" and investors should consider of the current "enhanced buying opportunity at these levels."

Kulkami acknowledged that shares will remain volatile and will require "even clearer articulation" from Valeant's management. Nevertheless, the analyst stated that he continues to like the company's "diverse" business mix, "sticky and durable" asset base, and low product concentration risk.

Shares remain Buy rated with an unchanged $290 price target.

Nomura: ‘Our Diligence Suggests That This Is Not Accurate'

Shibani Malhotra offered a very brief "first look" analysis, stating that "while we have been unable to share our analysis with or speak with Valeant, our own diligence suggests that this [Citron's claims] is not accurate."

Shares remain Buy rated with an unchanged $290 price target.

Latest Ratings for VRX

Jun 2018TD SecuritiesDowngradesBuyHold
Jun 2018BarclaysUpgradesEqual-WeightOverweight
May 2018MizuhoUpgradesNeutralBuy

View More Analyst Ratings for VRX
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