Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and MannKind Corporation (NASDAQ:MNKD) both know what it’s like to be the fan favorites in the biotech sector. Valeant was popular for its large product portfolio while MannKind generated excitement among investors for Afrezza, which was supposed to be the next blockbuster drug for diabetes. However, since Valeant came under scrutiny for fraud allegations and pricing practices and Afrezza turned out to be a flop, analysts are singing a different tune.
Valeant Pharmaceuticals Intl Inc
Better late than never, Valeant finally reported its long-awaited fourth quarter earnings and revised 2016 guidance. Neil Maruoka of Canaccord Genuity summarizes the company’s earnings as the pharma giant posted Q4 revenue of $2.8 billion and non-GAAP EPS of $2.50. Revenue beat Maruoka’s estimate of $2.7 billion while EPS missed his estimate of $2.59.
The company posted guidance lower than what Maruoka had anticipated, guiding 2016 non-GAAP EPS between $9.50 and $10.50. In turn, the analyst lowered his 2016 EBITDA estimate to $5.6 billion, down from $6.9 billion, and lowered his adjusted 2016 EPS estimate to $9.89, down from $13.57. The analyst explains, “We believe that the implementation of the partnership with Walgreens, coupled with new managed care contracts and inventory destocking, have all contributed to the much lower outlook for next year.”
Maruoka comments on several reasons to be concerned about the company, such as its strained relationships with managed care. He explains, “We believe managed care is likely to create growth headwinds in 2016 and, as such, these relationships should be a priority as they present a major risk for the company.” Secondly, there is still uncertainty surrounding the investigation between Valeant and Philidor. Lastly, the analyst is alarmed that the company has yet to file its 10-K, commenting this is creating “a significant overhang for the stock.”
The “deteriorating outlook” coupled with Valeant’s “eroding fundamentals” have sent investors fleeing. While the analyst continues to see value in the company, he cannot recommend it due to near-term risks. Maruoka is remaining on the sidelines for now, reiterated a Hold rating with an unchanged price target of $75.
According to TipRanks, Maruoka is one of 10 analysts recommending to Hold Valeant. Eight analysts recommend buying VRX while 3 remain on the sidelines. The average 12-month price target between these 23 analysts is $85.63, marking a 155% potential upside from where shares last closed. Maruoka has a 19% success rate recommending stocks with an average loss of 34.5% per rating.
Joshua Schimmer of Piper Jaffray weighed in on MannKind after the company reported fourth quarter earnings, remaining bearish as Afrezza continues to falter. MannKind captivated investors with hopes that Afrezza, its FDA-approved inhalable insulin for diabetics, would become the next blockbuster drug. However, the new drug failed to gain traction, leading Valeant to lose a key partnership with Sanofi.
The analyst elaborates on the termination of the Sanofi partnership, explaining, “[MannKind] awaits return of rights from SNY so it can embark on its own, targeted commercial efforts. However, with limited financial resources, the company has a very short window within which to sufficiently inflect the launch.” The new leader of this effort is Michael Castaga, MannKind’s new CCO from Amgen who has experience launching drugs.
In light of MannKind’s cash impairments and finite amount of cash due to the Afrezza launch, Schimmer believes the company is running out of options. He reiterates an Underweight rating on the company with a $0.05 price target.
According to TipRanks, 3 analysts recommend selling shares of MNKD, 1 remains bullish, and 1 is neutral. The analyst has an 18% success rate recommending stocks with an average loss of 22.6% per rating.