Valeant Pharma: The Empire Strikes Back

• Shares of Valeant Pharmaceuticals Intl Inc VRX have appreciated 17.21 percent over the past three months, while declining 0.35 percent over the past month.
• Rodman & Renshaw’s Raghuram Selvaraju has initiated coverage of the company with a Buy rating and price target of $150.
• Selvaraju believes that concerns regarding the company have been overdone by investors, and that the fundamentals of Valeant Pharma’s business model remain intact.

Analyst Raghuram Selvaraju believes Valeant has been “unfairly beaten down” due to some recent setbacks, such as the relationship with its specialty pharmacy distributor Philidor Rx Services, repeated press reports on the company hiking the prices of its major branded drugs and the recent hospitalization of CEO J. Michael Pearson.

“The firm has achieved rapid growth over the course of the past seven years using a model of aggressive acquisitions, drastic restructuring and tax arbitrage,” Selvaraju said, while adding that “the current business is highly diversified, relatively protected from patent expiration impact, and durable with retained cash flow-generating capability.”

Related Link: Express Scripts Calls Out Valeant, Says It's "Holding Pharmaceutical Manufacturers Accountable For Excessive Price Hikes"

In fact, Selvaraju believes that the company has the capability to generate EBITDA of $7 billion in 2017, on sales of about $12.7 billion, while growing revenues to more than $15.6 billion by 2018.

Expressing optimism regarding the company’s near- and mid-term growth outlook, the analyst pointed out that Valeant Pharma has entered into a 20 year contract with the largest pharmacy network in the United States, Walgreens Boots Alliance Inc WBA, to distribute Valeant’s products.

In addition, Bausch + Lomb, the eye care segment, has been growing rapidly. Valeant Pharma’s gastroenterology franchise is expected to be able to generate top line revenue of more than $5 billion by 2018.