Valeant’s Debt Problems Continue to Be Overhangs for the Stock
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) were stumbling almost 6%, having lost practically 13% in trading ever since July 26th– when the troubled biotech giant revealed it had made a deal to sell its Obagi Medical Products business for $190 million in cash, 55% plus under the original $437 million paid just four years ago. It was a shame for Valeant investors, who had seen shares circle twice over April’s trading prices to see a present-day falling knife once again. The stock’s next dash of momentum- positive or negative- hinges upon second quarter earnings, due next Tuesday.
Canaccord analyst Neil Maruoka sees more hurdles ahead, anticipating throughout the rest of 2017, guidance could come back down again, even after last quarter’s pleasant surprise of a revenue and adjusted EBITDA outclass for 2017. However, there is a pro rated 2017 EBITDA contribution from assets just divested (iNova and Dendreon) that linger in the air, leading Maruoka to project towards the low end of the outlook range.
Ahead of the print, the analyst sizes the giant up from a sidelined stance, reiterating a Hold rating on shares of VRX with a $14 price target, which represents a close to 10% decrease from current levels. (To watch Maruoka’s track record, click here.)
For the second quarter, the analyst projects a top line of $2.20 billion, less bullish than consensus of $2.23 billion, and adjusted EBITDA of $929.0 million, more confident than consensus of $910.7 million.
Maruoka believes, “Based on IMS data, we expect continued stabilization of its core business, with modest growth in core products like Xifaxan offsetting the continued erosion in other areas. Although the launch of Siliq is likely to be slower, we nonetheless believe this drug could evolve into a modest growth driver for the company. Going into the print, we have made only modest adjustments to our revenue and adjusted EBITDA and GAAP EPS forecasts to include the recently announced divestiture of Obagi. […] Given Valeant’s elevated leverage, lower growth, and higher risk profile, we believe that a discount to the specialty pharma peer group is warranted.”
Placing elevated leverage under the spotlight, the analyst wagers that even if the stock had been seeing a surge before the Obagi sale, riding a wave of “speculation of a potential debt-for-equity swap,” for now, “considerable uncertainty” still laces the path ahead as to a) what this deal will “look like” and b) whether such a deal can substantially benefit the giant’s leverage.
Ultimately, “Divesting at attractive valuations proves to be challenging,” contends Maruoka who notes that even if the VRX team has spotted roughly $8 billion of non-core assets that could feed the looming debt, “Although recently announced divestitures are positive, they nonetheless underscore the challenges of achieving accretive multiples without giving up growth-driving assets.”
TipRanks analytics demonstrate VRX as a Hold. Out of 15 analysts polled by TipRanks in the last 3 months, 3 are bullish on Valeant stock, 9 remain sidelined, and 3 are bearish on the stock. With a return potential of 9%, the stock’s consensus target price stands at $16.85.
Dynavax Heplisvav PDUFA Postponed Was to Be Expected
Dynavax Technologies Corporation (NASDAQ:DVAX) shares rocketed almost 6% yesterday after the biotech firm handed in a solid second-quarter print and update that had the Street humming for the prospective approval chances of hepatitis B vaccine Heplisav- with a PDUFA date set for next Thursday.
Then what led investors to suddenly be on pins and needles, sending shares tumbling 5% in pre-market trading today? News broke Heplisav’s date with FDA destiny has been pushed back three months to November 10th, which had followed the favorable vote from the Vaccines and Related Biological Products Advisory Committee Panel a week ago.
Cowen analyst Phil Nadeau remains wholly unfazed by the delay, as he had predicted this would be in the cards for Dynavax- cards that still spell out an end game of success for the Hepatitis B vaccine. “We are not surprised by the PDUFA extension, and remain highly confident that Heplisav will be (finally) approved,” asserts Nadeau.
Therefore, the analyst continues to think that DVAX is significantly undervalued for Heplisav’s potential, and maintains an Outperform rating on the stock with a price target of $30, which implies a just under 93% increase from where the stock is currently trading. (To watch Nadeau’s track record, click here.)
In the grander scheme, for the analyst, “VRBPAC’s discussion suggested that Heplisav’s approval would be pushed beyond August 10, just as, in our opinion, VRBPAC’s vote and comments were a clear endorsement of Heplisav’s approval. Therefore we remain highly confident that Heplisav will soon be licensed. […]”
Importantly, none of these requests are “unachievable,” as Nadeau surmises with bullish conviction on the stock’s prospects, “Dynavax thinks all of the FDA’s and VRBPAC’s requests for the design of Heplisav’s postmarketing study can be satisfied, and DVAX has already begun working with its third party providers to develop a study that addresses all of VRBPAC’s feedback. ”
TipRanks analytics exhibit DVAX as a Strong Buy. Based on 4 analysts polled by TipRanks in the last 3 months, all 4 rate a Buy on Dynavax stock. The 12-month average price target stands at $28.67, marking a nearly 69% upside from where the stock is currently trading.