Healthcare analysts expressed their opinions on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Depomed Inc (NASDAQ:DEPO) following a credit facility waiver and a battle with a major stakeholder, respectively. Both analysts explain how these events and their resulting outcomes will drive each stock forward, changing their price targets in different directions.

Valeant Pharmaceuticals Intl Inc

Analyst Ram Selvaraju of Rodman and Renshaw weighed in on VRX after the company announced that most of its creditors approved a proposed amendment and waiver to its credit facility in order to file its 10-K, 10-Q, and 1Q documents on time. As part of the agreement, the company will “pay a fee of $50,000 per $10M loan tranche and boost interest rates on the debt by a percentage point.” As a result of the agreement, the analyst increases his interest expense estimates and reduces his EPS estimates for 2016 and 2017.

Despite increased expenses related to the deal, Selvaraju does not believe Valeant will turn to asset sales in order to balance offset these costs. He explains, “From our perspective, it is unlikely that Valeant would seek to sell core assets such as the Bausch + Lomb division or its Salix franchise near-term.” Assuming the company did in fact turn to asset sales, the analyst believes it would not be in VRX’s best interest at this point. First, companies “view Valeant as a distressed seller [and] they would not be willing to pay Valeant a fair price.” Second, tax inequalities would deter any acquisitions. The analyst elaborates, “We consider Valeant’s ability to generate cash flows from its core assets to be significantly greater … if those assets were to be acquired by entities taxed at the U.S. statutory corporate tax rate. Thus, only acquirers that are positioned in a manner similar to Valeant from a tax perspective might be willing to pursue such transactions.”

Despite the company’s “harmful and toxic” decisions of the last quarter, the analyst thinks “a middle ground can be achieved”, propelling the company into growth. However, former CEO Michael Pearson’s replacement is a major factor determining whether the company can get back on track. Selvaraju further describes steps the company must take to turnaround but expresses caution. He explains, “We believe that a focus on risk-mitigated late-stage pipeline assets, elimination of low-quality businesses, and aggressive debt reduction should return Valeant to stability, though the firm may never regain the heights scaled only last year.” Once Valeant regains investor trust following its scandal ridden quarter, Selvaraju believes the stock will rebound.

The analyst reiterates a Buy rating on VRX though lowers his price target from $118 to $105.

According to TipRanks, Ram Selvaraju has a 47% success rate recommending stocks with an average return of 2.7% per recommendation. Out of the 21 analysts who have rated VRX in the past 3 months, 7 are bullish, 4 are bearish, and 10 remain on the sidelines. The average 12-month price target for the stock is $48.90, marking a 45% upside from current levels.

Depomed Inc

Top ranked Mizuho analyst Irina Rivkind Koffler gave her two cents on Depomed after Starboard, a New York based hedge fund, disclosed a large stake (9.8%) in the company with plans to call a shareholder meeting to change some of the company’s board members.

The analyst explains how she believes the stock will react to this disclosure, stating, “We expect the stock to now trade in a higher range after Starboard Value disclosed its position in DEPO last week.” However, as a result of management talks with Depo and specialty pharma company HZNP, the analyst believes “a near-term takeout is unlikely” and cites three reasons why. First, Koffler points to the stocks’ uncertain valuation ahead of its Nucynta settlement, expected only in 3Q:16. Second, the analyst states that the entire process of electing a new board and holding a meeting may take a few months. Finally, Koffler points to HZNP’s “reaffirmed …lack of interest” in acquiring Depo following its first November decision not to do so, and believes other potential buyers would follow suit.

While Koffler believes in only a 20% chance of a takeout, the analyst notes that “Starboard’s involvement provides some hope to the takeout thesis” and raises her price target from $14 to $18. She explains, “For now we assign an 80% probability of DEPO as a standalone and a 20% probability of a takeout. Given Horizon’s lack of interest, we think any other buyers could be very value-conscious, which accounts for our low takeout premium estimate. Taken together, we arrive at our new blended $18 PT (80%*$17)+(20%*$20).”

Koffler reiterates a Neutral rating on the stock and raises her price target to $18 from $14. She states, “We expect a drawn-out battle but also acknowledge that this situation should provide support to the stock, even in the face of any weaknesses in the business.”

According to TipRanks, Irina Rivkind Koffler is ranked #10 out of 3,863 analysts. She has a 57% success rate recommending stocks with an average return of 28.7% per recommendation.

Irina Koffler Consensus

Out of the 8 analysts who have rated the company in the past 3 months, 6 are bullish and 2 remain on the sidelines. The average 12-month price target for the stock is $23, marking a 36% upside from where current levels.