Morgan Stanley analysts were out today with commentary on healthcare giants Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Amgen, Inc. (NASDAQ:AMGN). While one analyst provides some tidbits from his visit at Valeant headquarter, the other weighs in on the implications of the FDA’s rejection of Amgen’s kidney disease treatment Parsabiv. Let’s take a closer look:
Valeant Pharmaceuticals Intl Inc
Morgan Stanley analyst David Risinger has visited Valeant headquarter in New Jersey and met with CEO Joe Papa, SVP of Strategy and Communications Scott Hirsch, and Treasurer Linda LaGorga. Risinger came away more confident that management is taking the right steps to turn the business around and pay down debt.
Here are a few notable tidbits from the visit: “1) Papa had been in discussions with new CFO Paul Herendeen for a few months to bring him on board. Papa did not commit and say that Herendeen has “bought in” to 2H16 guidance, but commented that Herendeen had spent a lot of time trying to understand the business before taking the role. 2) The company has approximately $2B of NOLs in the U.S. and $2B in Canada, which help offset tax leakage in asset sales. 3) Mgmt. believes investigation-related settlements are two years away at minimum. Once fines/settlements are “estimable and probable” then the company will reserve cash for settlements in restricted cash (as per accounting rules). 4) Upcoming contingent consideration payments include ~$150M for brodalumab approval and $50M for Relistor oral. We already factor in $400M of contingent consideration in 2H:16 in our cash flow model.”
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According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst David Risinger has a yearly average return of 1.9% and a 54.5% success rate. Risinger has a -4.3% average return when recommending VRX, and is ranked #1537 out of 4127 analysts.
Out of the 17 analysts polled by TipRanks (in the past 3 months), 6 rate Valeant stock a Buy, 9 rate the stock a Hold and 2 recommend to Sell. With a return potential of nearly 36%, the stock’s consensus target price stands at $39.03.
Amgen management intends to meet with the FDA later this year to discuss receiving a Complete Response Letter for its pipeline drug, Parsabiv (etelcalcetide), an IV administered calcimimetic intended to treat secondary hyperparathyroidism (sHPT) in adult patients with chronic kidney disease (CKD) on hemodialysis.
For the time being, management will not comment on the reasons the FDA cited nor did management reveal details regarding the delay anticipated. However, Morgan Stanley analyst Matthew Harrison reiterates an Overweight rating on shares of AMGN, while trimming the price target from $199 to $198, which represents a nearly 16% increase from where the shares last closed.
Harrison comments, “We are delaying a Parsabiv launch in our model by one year and lowering 2020E sales to $350M from $500M. Assuming a mid- 2017 launch, it will still give mgt. ~1 year to try to convert Sensipar patients to IV. Further, given that Parsabiv will be outside the bundle, there remains hope that even with a launch close to a Sensipar expiry, Parsabiv could take share. We await additional details from mgt.”
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“While delay is disappointing and increases risk on HPT franchise, we expect only minor impact to AMGN,” he concludes. Amgen will eventually need this approval, as the biotech giant’s oral calcimimetic agent Sensipar that garnered a hefty $1.4 billion in 2015 sales is on the brink of losing its US patent protection come March 2018.
Harrison expects Parsabiv will be approved on the basis of a one-year delay, and forecasts $75 million in 2016E revenues will amplify to $500 million in annual revenue by 2020E.
According to TipRanks, four-star analyst Matthew Harrison is ranked #908 out of 4,127 analysts. Harrison has a 60% success rate and realizes 4.1% in his annual returns. When recommending AMGN, Harrison earns 16.3% in average profits on the stock.
TipRanks analytics exhibit AMGN as a Buy. Based on 14 analysts polled in the last 3 months, 9 rate a Buy on AMGN, while 5 maintain a Hold. The 12-month average price target stands at $190.92, marking an 11% upside from where the stock is currently trading.