Valeant Pharmaceuticals Intl Inc (VRX) Turnaround Remains an Open Question, Sarepta Therapeutics Inc (SRPT) Has Good Odds to Get Port Recommendation from FDA ADCOM


In the biotech-verse, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is riding a fresh wave of positive momentum following first quarter earnings that outclassed investors’ lukewarm expectations. Meanwhile, Sarepta Therapeutics Inc (NASDAQ:SRPT) has a date this week with the FDA’s pediatric advisory committee (PAC), which will determine whether SRPT’s Phase 3 ESSENCE study will be allowed to use ports instead of IVs in the placebo group.

Let’s explore why Barclays is still sidelined to a halt on VRX’s prospects, despite recent short-term improved sentiment, but Nomura looks ahead with a bullish slant on SRPT’s probability to secure ethical endorsement from the agency:

Valeant Lives to Fight Another Day?

Valeant delivered a first quarter print for the year that took much of the Street by surprise with stronger financial results than anticipated, specifically lack of a guidance chop coupled with promising court evidence pointing to key updates for Valeant’s leading drug Xifaxan (rifaximin), an antibiotic designed to fight bacterial infection in the intestines. A judge ruled favorably for Valeant while extending the 30-month stay on its patent litigation.

Does this mean the troubled biotech giant’s woes are coming to an end? For Barclays analyst Douglas Tsao, this certainly is all good news- but he is not cheering through rose-colored glasses just yet. Finding debt to still be an important piece the giant will have to puzzle out, the analyst reiterates a Hold rating with a $20 price target, which represents a just under 46% increase from where the stock is currently trading.

“VRX 1Q17 earnings didn’t bring a feared cut to guidance, but with upside largely from LOEs ‘outperformance’ it’s too early to say the company is ready to move into turnaround phase. VRX remains on track pay down $5B of debt by 1Q18, having already paid down $3.6B, especially considering media reports suggesting VRX’s iNova business might be sold for >$1B. That said, 1Q17 key product performance was underwhelming, with ASP recovery in dermatology offsetting weaker script trends. Recent re-financing gives them flexibility near-term, which mgmt feels is underappreciated. Mgmt would argue that debt doesn’t need to be eliminated, simply leverage ratio brought to manageable levels. There’s truth in that, but with +$21B in maturities between 2020-23, VRX needs to provide road map for getting to that point,” opines the analyst.

Ultimately though, Tsao anticipates Valeant will be “living to fight another day.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Douglas Tsao is ranked #1,022 out of 4,561 analysts. Tsao has a 56% success rate and earns 6.8% in his annual returns. However, when recommending VRX, Tsao forfeits 73.3% in average profits on the stock.

TipRanks analytics indicate VRX as a Hold. Out of 14 analysts polled by TipRanks in the last 3 months, 2 are bullish on Valeant stock, 9 remain sidelined, and 3 are bearish on the stock. With a return potential of 7%, the stock’s consensus target price stands at $14.60.

Sarepta Looking to Score Port Blessing from the PAC

Sarepta faces an important FDA advisory committee this Thursday that will tackle a protocol modification to the biotech firm’s ESSENCE trial in the indication of Duchenne muscular dystrophy. The big question on every investor’s mind is whether the firm can win a recommendation on the ethical quandary: should the FDA allow ports (indwelling access devices) to be used against IV infusions?

Nomura analyst Christopher Marai just held a dinner at the American Academy of Neurology (AAN) with a key opinion leader (KOL) who argued in favor of the port. Considering the expert’s recommendation backs SRPT’s trial methods and in general sentiment slants pro-recommendation of this controversial protocol, Marai remains bullish on Sarepta ahead of the PAC meeting. As such, the analyst reiterates a Buy rating on SRPT with a price target of $84, which represents a close to 145% increase from where the shares last closed.

Marai notes, “In the KOL’s experience, the port is easier for patients to tolerate than IV, which can be difficult to insert weekly. We view port use for commercial drug delivery as supporting broad adoption, utilization, and compliance, offering an easier route to at home infusions. Recall, SRPT’s ‘045 and ‘053 are delivered by IV infusion weekly, similar to Exondys-51, though a growing number of commercial patients are opting for indwelling ports to easy weekly drug delivery.”

Moreover, “Briefing Docs portray the Portacath as the safest method of drug deliver, reducing the risks for infections and discomfort,” continues the analyst, explaining, “The latter is extremely important, as some portion of DMD patients present with autistic spectrum disorders.” The only real ethical issue boils down to the fact port insertion demands a patient’s general sedation, which impacts its use amongst the control group.

Overall, “[…] we believe that the FDA is likely to maintain the current design of the study and will approve the use of Portacath in the study, but construct certain evaluation that will justify its use,” Marai contends.

According to TipRanks, four-star analyst Christopher Marai is ranked #725 out of 4,561 analysts. Marai has a 48% success rate and garners 5.4% in his yearly returns. When recommending SRPT, Marai realizes 4.2% in average profits on the stock.

TipRanks analytics show SRPT as a Strong Buy. Based on 12 analysts polled by TipRanks in the last 3 months, 11 rate a Buy on Sarepta stock while 1 maintains a Hold. The 12-month average price target stands at $57.55, marking a nearly 68% upside from where the stock is currently trading.