Valeant Pharmaceuticals Intl Inc (VRX) Facing Headwinds As Dermatology Business Struggles

Analyst Gregg Gilbert of Deutsche Bank remains on the fence with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) after mixed second-quarter results. The company’s EPS of $1.03 beat out both consensus and the Gilbert’s estimates of $0.94 and $1.00, respectively. Though gross margin did not perform as strongly as Gilbert had expected, it was offset by lower operating expenses and income from intercompany loans and gains on translational FX. On the other hand, the company has experienced headwinds slowing down the Dermatology business.

With this in mind, Gilbert is lowering 2017 revenue expectations from $8.59 billion to $8.51 billion “based primarily on lower sales for Dermatology and planned divestiture of Obagi.” The analyst maintains both his Hold rating and $19.00 price target on VRX representing a 32% rise over current trading levels. (To watch Gilbert’s track record, click here)

In addition, Gilbert presented the takeaways from the earnings call: “1) VRX does not see an urgent need to sell additional assets in the near term to address the debt load, and believes it now has a very plausible path to deal with all of its debt over time; 2) lower volume accounted for most of the decline for the Dermatology business (sales were down ~30% YoY and sequentially), and VRX noted that payers have been aggressively restricting access to less innovative brands in the space; 3) management continues to view Dermatology as core, and believes that its innovative pipeline (eg, Siliq and IDP-118 for psoriasis) will help return the business to growth; 4) on Xifaxan, VRX attributed recent improvement in volume growth to its primary care sales effort; 5) the company would like to further reduce its US channel inventory levels, which stood at ~1.3-1.6 months at the end of 2Q17, over time.”

The analyst concludes, “While our target price implies material upside, we are sticking with our Hold rating pending greater visibility on improved demand trends for Xifaxan and other core assets, and stabilization of the Dermatology business,” explains Gilbert.

Of 13 analysts polled by TipRanks (in the past 3 months), 3 rate Valeant stock a Buy, 3 as a Sell, while 7 are Hold. With a return potential of nearly 19%, the stock’s consensus target price stands at $17.08.


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