A Balanced Take on Valeant (VRX) Following Yesterday’s Sell-Off

Valeant (NYSE:VRX) shares fell 12% yesterday on news that the FDA issued a complete response letter (CRL) concerning the drug maker’s plaque psoriasis treatment DUOBRII, delaying approval.

The FDA didn’t kill the drug, but it didn’t approve it either. The CRL noted questions regarding pharmacokinetic data, but did not specify any deficiencies to the clinical efficacy or safety of Duobrii and no issues with Chemistry, Manufacturing and Control (CMC) processes.

In reaction, BTIG analyst Tim Chiang reiterated a Neutral rating on Valeant shares, without suggesting a price target. (To watch Chiang’s track record, click here)

Chiang noted, “With VRX’s dermatology segment continuing to face challenges as a result of a lack of new product launches, we think it will be important for the Co. to get resolution on the FDA’s questions (which are tied to the pharmacokinetic [pk] profile). Currently, our CY18 and CY19 dermatology sales estimates are $452M (down ~25% YOY), and $497M (up ~10% YOY), respectively. On an EV / EBITDA multiple basis, VRX shares trade at ~10.5x, which is at the upper end of the valuation range in our coverage universe.”

“Next month, VRX is expected to change its name to Bausch Health, and its ticker to BHC. While we view these changes in a positive light, we think the main issue Valeant faces heading into 2H18 and 2019 is the need for new products, especially in the dermatology segment. While VRX has stabilized its Bausch + Lomb (eye care) and Salix (GI) segments, dermatology sales continue to fall (dropping ~42% YOY in 1Q), which we find troubling,” the analyst continued.

Wall Street backs Chiang’s caution here, as TipRanks analytics reveal VRX as a Hold. Based on 13 analysts polled in the last 3 months, 5 rate a Buy on Valeant stock, 4 recommend a Hold, and 4 issue a Sell on the stock. The 12-month average price target stands at $21.55, marking a 10.5% downside from where the stock is currently trading.


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