It’s a volatile day for biotech stocks Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Depomed Inc (NASDAQ:DEPO) today, with both on a sharp descent after financial third-quarter results that were less than impressive, to say the least. Whereas one top analyst was expecting uninspiring performance from Valeant this quarter, she still notes the performance was weaker than even anticipated. In turn, the analyst assessing Depomed’s quarterly earnings has moved to the sidelines in the aftermath. Let’s take a closer look:
Valeant Pharmaceuticals Intl Inc
Valeant shares are crashing 20% after posting what top analyst Irina Rivkind Koffler at Mizuho criticizes as a third-quarter “miss” coupled with disappointing fourth-quarter guidance. Though it was “widely expected” for the troubled biotech giant to underperform amid its recent string of obstacles, “perhaps the magnitude was not,” the analyst explains, reiterating a Neutral rating on VRX with a price target of $25, which represents a close to 74% increase from where the shares last closed.
For the third quarter, Valeant reached $2.48 billion in revenues, which came up short compared to Street Account consensus calling for $2.51 billion, although beating the analyst’s expectation of $2.44 billion. VRX reported non-GAAP EPS of $1.55, which was another miss compared to the StreetAccount consensus estimate of $1.75 and the analyst’s forecast of $1.63. Meanwhile, VRX’s new CFO pulled back on guidance for the financial year of 2016 from a range of $9.9 to $10.1 billion in revenues to $9.9 to $10.1 billion and EPS from a prior range of $6.6 to $7.00 down to $5.30 to $5.50. Moreover, adjusted EBITDA is now approximately projected for $4.25 to $4.80 billion.
Koffler asserts, “Investors were looking for a whisper guidance range ahead of the quarter but we think the new one may be worse than expected. We were modeling $9.76B and $6.15 for FY:16 so our 4Q:16 estimates appear too high relative to guidance and we note consensus estimates are even higher. With this announcement we think that credibility of the new management team has been impaired, and hopes of a quick business turnaround should be discarded. We will revisit our recommendation and PT after the call.”
After observing waning growth in various segments, the analyst believes this to be an indication that “asset sales can’t come fast enough,” particularly noting a 5.4% year-over-year fall in Salix revenues in the third quarter and underscoring that in 2015, “the business was undergoing aggressive inventory de-stocking.”
“Valeant also reported several concerning manufacturing issues as well as a PDUFA delay for psoriasis drug, Brodalumab, which will require a REMS for approval. We expect this REMS to make commercialization extremely challenging in a crowded category where others aren’t burdened with similar requirements,” Koffler concludes.
Irina Rivkind Koffler has a very good TipRanks score with a 45% success rate and she stands at #95 out of 4,181 analysts. Koffler garners 14.9% in her annual returns. When recommending VRX, Koffler earns 18.2% in average profits on the stock.
TipRanks analytics exhibit VRX as a Hold. Based on 11 analysts polled in the last 3 months, 3 rate a Buy on VRX, 6 maintain a Hold, while 2 issue a Sell. The 12-month price target stands at $31.85, marking a nearly 116% upside from where the stock is currently trading.
Depo shares are falling 21% after yesterday’s weak third-quarter print. In lieu of soft-pedal growth expectations, Chiara Russo at Cantor downgrades from a Buy to a Hold rating on shares of DEPO while trimming the price target from $25 to $23, which represents just under a 26% increase from current levels.
For the third-quarter, the biopharma company posted revenues of $110.5 million, which Russo notes is “well below” FactSet consensus who looked for $126.8 million as well as the analyst’s estimate of $125 million. Though non-GAAP EPS of $0.28 essentially fell “in-line” with the analyst’s estimate of $0.30, it underperformed consensus of $0.35. Furthermore, management cut guidance for the rest of 2016. The company closed the quarter with $137 million in cash.
Russo opines, “We anticipate shares of DEPO to trade off following disappointing 3Q16 results. Though we can appreciate the one-time items that hit in the quarter, we believe that softness within the overall pain space, increased pressure at the wholesaler level, gross to net erosion and a distracted sales force make for less transparency and more uncertainty around growth prospects.”
The analyst notes, “We are aware of the potential for M&A activity following the ANDA rulings; however, at this time, we feel that the fundamentals outweigh any acquisition premium as timing remains uncertain and momentum wanes.”
“We believe recent fiscal results and branded pricing pressures are having a negative impact on wholesalers. Whether this manifests in simply a few less days of inventory or something more is difficult to tell. We view this lack of clarity as a negative,” Russo surmises.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, one-star analyst Chiara Russo is ranked #3,499 out of 4,181 analysts. Russo has a 43% success rate and faces a loss of 3.0% in her yearly returns. However, when suggesting DEPO, Russo gains 25.5% in average profits on the stock.
TipRanks analytics demonstrate DEPO as a Buy. Out of 8 analysts polled by TipRanks, 4 are bullish on DepoMed shares and 4 remain sidelined. With a return potential of nearly 49%, the stock’s consensus target price stands at $26.80.