Biotech Insights: Analysts Shine Light on Valeant Pharmaceuticals Intl Inc (VRX) and Relypsa Inc (RLYP)

Many biotech analysts have turned against drug makers Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Relypsa Inc (NASDAQ:RLYP) as the former faces several fraud allegations and the latter struggles to get it’s lead product off the ground. Despite the bears, two analysts explain why they have differing views on these two biotech giants.

Valeant Pharmaceuticals Intl Inc

All eyes will be on Valeant’s earnings tomorrow as the company continues to regain lost ground in the face of multiple investigations and a leadership transition. Neil Maruoka of Canaccord Genuity weighs in on the embattled pharmaceutical company ahead of earnings, highlighting his estimates and the key challenges Valeant still faces.

Maruoka forecasts revenue of $2.4 billion, marking a 15.1% quarter-over-quarter decrease. He explains, “Going into the print, we expect that many of the issues that have dogged the company in 2015 are likely to spill over into the first quarter. We expect continued lost sales resulting from the termination of Philidor and potential challenges associated with the implementation of the Walgreens distribution agreement. Further, we expect pricing headwinds to grow as many insurers now feel they have the ‘political license’ to push back on past practices.”

While many are outright bearish on Valeant, Maruoka is staying by the sidelines. He notes that “substantial risk” still exists for Valeant and drug pricing issues will remain at center stage. The analyst points to the company’s “strained relationships with managed care” as a significant area of concern, coupled with the company’s deficient internal controls. All in all, Maruoka blames Valeant’s current precarious state on a culture that placed more importance on profit than relationships.

Maruoka maintains a Hold rating on Valeant with a $40 price target, marking a 38% potential upside from current levels.

According to TipRanks, 33% of analysts are bullish on Valeant, 48% are neutral, and 19% are bearish. The average 12-month price target is $47.29, marking a 64% potential upside.

Relypsa Inc

Relypsa is enjoying newfound attention after the FDA delayed its decision on AstraZeneca’s ZS-9, which would compete with Relypsa’s Veltassa, as both drugs treat hyperkalemia. Liana Moussatos of Wedbush weighs in, explaining that the FDA’s CRL (complete response letter) pointing to manufacturing concerns could delay the FDA’s decision on competing ZS-9 until 2017 and “give Relypsa more than a year to establish Veltassa as the preferred chronic treatment for hyperkalemia.”

While many remain bearish on Relypsa, Moussatos believes the bear arguments don’t have teeth. She explains, “Since the ZS-9 CRL we have heard bear arguments about Veltassa having many adverse events reported to the FDA; however, the FDA has not issued any warnings.” The analyst continues, “We have also heard that doctors perceive the specialty pharmacy hub for prescribing Veltassa to be a hassle due to extra paperwork compared with the anticipated retail prescribing of ZS-9.” However, Moussatos clarifies that “reimbursement hurdles are likely to be the same for ZS-9 as for Veltassa.”

Lastly, since Relypsa submitted a sNDA to the FDA, the analyst is optimistic that the black box warning will be removed given positive data surrounding drug-to-drug reaction tests. Looking forward, the analyst is waiting for May Veltassa prescriptions to be released in the middle of this month.

Moussatos reiterates an Outperform rating on Relypsa with a $51 price target, marking a 155% potential upside.

According to TipRanks, 80% of analysts are bullish on RLYP while 20% remain neutral. The average 12-month price target is $30.56, marking a 53% potential upside from current levels.


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