Valeant Pharmaceuticals’ Overall Trajectory Remains on Edge, Teva Pharmaceutical May Face Difficulty Beating Consensus

Don't Overvalue Valeant's Recent Rally, Teva's Momentum Waiting in Back Half of the Year


Valeant Pharmaceuticals Intl Inc (NYSE:VRX) may have lessened its net debt, easing liquidity concerns, but as far as Piper Jaffray analyst David Amsellem sees the biotech giant, troubled waters have not ceased just yet.

With projected EBITDA for 2017 well beyond seven times over and domestic segment trends appearing less than robust, the analyst is not swayed by confidence from the stock’s rally following April dips- nor by asset sales. It is a surge that does not feel stable to Amsellem who believes the giant’s performance in the market has more to do with debt transaction news that meaningful maturities have been pushed back for the next few years at least.

In reaction, the analyst reiterates an Underweight rating on shares of VRX with a $10 price target, which represents a 42% downside from where the shares last closed. (To watch Amsellem’s track record click here.)

So, for those cheering the giant’s valuation has circled nine times over its 2017 earnings estimate, this simply “does not make sense,” the analyst points out.

Amsellem concludes, “Overall Rx’s for the U.S. dermatology are showing a year-to-date (YTD) decline of 29% in 2017 versus the same period in 2016 (Rx’s), and are showing a decline of 32% in 2Q17 versus 2Q16 (monthly Rx data through May). VRX is pointing to the upcoming launches of Siliq in 2H17 and potentially IDP-118 in 2018 (both in psoriasis) as drivers of greater stability for this segment. Management has essentially conceded that stability will likely only come from new launches and not from more steady dynamics for existing products. That said, we do not believe that these new assets will have a large impact on the overall trajectory of this segment.”

Though bullish on the larger context at hand, Oppenheimer analyst Derek Archila expresses apprehension as Teva Pharmaceutical (NYSE:TEVA) prepares to post its second quarter financial results before the bell come August 3rd. All eyes are on who will be the new CEO to lead the biotech firm. Meanwhile, the analyst fear the Street is overshooting its second quarter earnings expectations, making it an uphill battle for Teva to outclass consensus.

With more than 80% of the firm’s drug candidate launches set to launch in the back half of the year, even if short-term there are challenges for Teva to impress with lofty expectations, the analyst reiterates an Outperform rating on the stock with a price target of $41, which represents a close to 24% increase from current levels. (To watch Archila’s track record click here.)

Archila elaborates, “We are cautious on TEVA into the quarter: News flow has generally been positive recently with fremanezumab’s positive results in both chronic and episodic migraine, no Copaxone 40mg generic (multiple sclerosis), and it seems the hiring of a new CEO may be imminent. However, we think the Street’s EPS forecast for 2Q is too high. We think consensus G&A forecasts are too low and don’t expect the company’s recent US generic approvals to meaningfully contribute to sales in the quarter. With the majority of TEVA’s launches (>80%) coming in 2H17 and no benefit from some positive one-time items in 1Q17, we think it will be difficult for TEVA to beat consensus.”

Shareholder attention will continue to be intent on the search for the firm’s new CEO, with five months having passed following CEO Erez Vigodman’s departure and a June investor conference update from management indicating an update is “weeks to months away.” Teva still has roughly $5 billion to go in debt rpayment by the end of the year, so investors will likely be looking for more details on sales from the firm’s Women’s health segment, generating around $515 million yearly as well as its European Pain and Oncology segment, generating approximately $360 million yearly.

“Additionally, we expect investors to seek color on the initial launch of Austedo in Huntington’s chorea (should start booking sales in July) and when TEVA’s non-AB rated Advair (AirDuo) and its own AirDuo authorized generic could begin to generate material product sales,” notes the analyst.

Looking ahead clinically, short-term, the spotlight rests on Austedo’s PDUFA in tardive dyskinesia set for August 30th, as well as the forthcoming International Headache Congress, with the firm likely to release encouraging trial data on fremanezumab in treating chronic and episodic migraine.

TipRanks analytics reveal TEVA as a Buy. Based on 11 analysts polled by TipRanks in the last 3 months, 5 rate a Buy on Teva stock while 6 maintain a Hold. The 12-month average price target stands at $36.70, marking an 11% upside from where the stock is currently trading.