Analyst Says More Work to Be Done in Valeant Pharmaceuticals Intl Inc (VRX) Turnaround After Q3 Success

BTIG's Tim Chiang believes a lot hinges on the Vyzulta launch for VRX to stage a solid comeback.


Valeant Pharmaceuticals Intl Inc (NYSE:VRX) shares jumped almost 30% this week thanks to a stronger-than-anticipated third quarter print that has stirred up renewed excitement for the recovering biotech giant.

BTIG analyst Tim Chiang still finds himself raising an eyebrow on the company even as he boosts his own EPS expectations, calling the company “a work in progress” where “key challenges remain.” After the success of Valeant’s third quarter, the analyst glances forward, noting, “our focus turns to Vyzulta,” the company’s glaucoma drug.

In reaction, the analyst reiterates a Neutral rating on VRX stock with a fair value between around $15 to $16, which implies a roughly 3% downside to a just under 4% upside from current levels. (To watch Chiang’s track record, click here)

For the third quarter, Valeant posted $2,219 million in total revenues, outclassing the analyst’s estimate of roughly $2,172 million, with adjusted EBITDA of $870 million that beat out Chiang’s expectations for $803 million.

For the year, the VRX team has dialed back its revenue guide from a range of $8.7 to $8.9 billion down to $8.65 to $8.8 billion, but has maintained its adjusted EBITDA expectations between $3.6 and $3.7 billion. For the calendar year of 2017, the analyst calls for VRX to bring in revenues of $8.73 billion coupled with adjusted EBITDA circling $3.62 billion, which Chiang notes both fall at the bottom end of Valeant’s targeted financial expectations. However, following the strength of the print, the analyst has boosted his EPS estimate for this year from $3.38 up to $3.61 and for next year from $3.65 up to $4.01.

Ultimately, “We think management, led by CEO Joe Papa and CFO Paul Herendeen are actually doing a commendable job stabilizing the growth for its key segments (namely Bausch + Lomb and Salix); however, other segments like dermatology are continuing to face steady YOY declines. Overall, we see Valeant as a work in progress. We think it will be important for the Co. to successfully launch its recently approved Vyzulta (latanoprostene bunod o.o24% ophthalmic solution for the treatment of open angle glaucoma). While we think there is a sizeable market opportunity within the glaucoma segment, most of the volume (almost 70%) within the prostaglandin category is currently generic. We think the success of Vyzulta will depend on the Co. convincing payers of the additive benefits with the product in lowering intra-ocular pressure vs. the existing competitors, which include Allergan’s (AGN, Not Rated) Lumigan,” Chiang concludes.

Valeant is not out of the woods yet with hurdles nor with proving itself to be worthy of an investment once again to investors, as TipRanks analytics demonstrate VRX as a Hold. Based on 13 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on Valeant stock, 7 maintain a Hold, while 3 issue a Sell on the stock. The 12-month average price target stands at $19.36, marking a 25% upside from where the stock is currently trading.