Biotech Beat: Analysts Bullish on Valeant Pharmaceuticals Intl Inc (VRX) and Zogenix, Inc. (ZGNX)

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Zogenix, Inc. (NASDAQ:ZGNX) both released exciting announcements yesterday, precipitating bullish ratings by analysts. Valeant revealed a new distribution deal with Walgreens, showing signs that it is recovering from allegations of fraud. Separately, the FDA cleared Zogenix’s IND application for an orphan disease.

Valeant Pharmaceuticals Intl Inc

Shibani Malhotra of Nomura reiterated a Buy rating on Valeant with an unchanged price target of $175 after the pharmaceutical company struck a deal with Walgreens. Under the terms of the deal, Walgreens has a 20-year agreement to fill prescriptions for Valeant’s dermatological and ophthalmological products at a 10% discount. This partnership is welcomed by investors as many were worried that Valeant would be unable to replace Philior; the specialty pharmacy with which Valeant cut ties after fraud accusations.

Malhotra comments, “We believe this bolsters management’s credibility, as investors had expressed skepticism that Valeant would be able to replace Philidor, especially this quickly, and management has delivered on that promise.” The analyst points out that the deal quells investor concerns that distributors would be reluctant to work with Valeant following the fraud allegations. The company is now ahead of schedule as it did not expect to replace Philidor until the first quarter of 2016. The analyst adds going forward, “Valeant says it expects to extend this distribution model to other independent pharmacies in the future.”

The analyst is also bullish on the deal because it allows Valeant to “[bypass] the traditional distribution system” and save costs for Valeant and patients alike. There will be an investor meeting this morning regarding the deal during which the analyst also expects an update an overview of “key business trends and significant pipeline products that remain under the radar for most investors.”

According to the 21 analysts polled by TipRanks in the last 3 months, 14 are bullish on the pharmaceutical company, 1 is bearish, and 6 remain neutral. The average 12-month price target is $164.81, marking a 50% potential upside from current levels.

VRX consensus

Zogenix, Inc.

Following an announcement that the FDA accepted the Investigational New Drug application for ZX008 in Dravet Syndrome, Difei Yang of Brean Capital reiterated his Buy rating on the biotech company with a $28 price target.

Dravet Syndrome is a rare form of epilepsy found in infants. ZX008 is now cleared to start Phase III trials, scheduled to begin before year-end. The analyst explains the layout of the impending study, noting, “We believe that the Phase III clinical trial is an extension of the Zogenix’s open-label study conducted from 2010-2014 with the bars lowered.”

The analyst believes this is a good entry point for the stock since yesterday’s announcement only had a minimal impact on share prices. Even though the market did not appreciate the value of the announcement, Yang believes that “the FDA seems in agreement that [ZX008] could have a favorable risk/reward profile in Dravet syndrome patients.” The analyst points to major impending catalysts, including the Phase III data read out in late 2016 and a New Drug Application in 2017.

According to the 4 analysts polled by TipRanks in the last 3 months, 3 are bullish on the biotech company while one remains on the sidelines. The average 12-month price target is $25.67, marking an 82% potential upside from current levels.

ZGNX consensus

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