Close up of pills/drugs on US dollar
There’s never a dull moment in the biotechnology sector as analysts weigh in on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) in light of a congressional memo exploring pricing practices and Synthetic Biologics Inc (NYSEMKT:SYN) after the company announced the termination of a drug license.
Valeant Pharmaceuticals Intl Inc
Irina Rivkind Koffler of Mizuho weighed in on Valeant after the House Oversight Committee released a memo yesterday explaining Valeant’s drug pricing strategy. The company came under scrutiny in October for its drug pricing practices after the company acquired two heart drugs, Isuprel and Nitropress, and hiked up the prices.
The analyst believes Congresses’ memo “paints a damning picture of an organization whose unified goal was to generate profit, rather focus on patients.” She continues, “Furthermore, the memo alleges that the company was keenly aware of its actions and tried to obfuscate its pricing actions via PR initiatives.” As a result, the analyst expects VRX shares to remain “highly volatile” this week.
Koffler also explains that CEO Mike Pearson is unlikely to return to the company. Pearson has been out on medical leave with pneumonia complications since December. However, Congresses’ memo alleges that CFO Howard Schiller and Pearson were aware of the pricing discrepancies due to information exchanged in a conference call last year. Koffler explains, “We think that the company may need to clarify these discrepancies and believe that investors and large shareholders could be unforgiving if management’s credibility is in question.” Due to the disclosures in the report, Koffler finds it unlikely that Pearson will return to his position.
Ultimately, Koffler reiterates a Neutral rating on Valeant with an unchanged price target of $112 in light of future uncertainty and stock volatility surrounding Congresses’ memo on the company’s drug pricing practices.
Koffler has a 59% success rate recommending stocks with a 34.8% average return per rating. According to TipRanks, 9 analysts are currently bullish on the stock while 8 remain on the sidelines. The average 12-month price target between these 17 analysts is $156.64, marking a 71% potential upside from current levels.
Synthetic Biologics Inc
Following Synthetic Biologics’ announcement yesterday to terminate its license for Trimesta, analyst Y. Katherine Xu of William Blair maintains her Outperform rating on the company but lowers her price target from $11 to $10.
Xu explains, “Synthetic Biologics reported that the third-party reviews of the Phase II trial evaluating Trimesta as a treatment for relapsing-remitting multiple sclerosis (RRMS) failed to demonstrate a significant treatment effect for Trimesta + Copaxone versus placebo + Copaxone at 12 or 24 months. The company decided to terminate the license agreement on Trimesta.”
Despite this termination, the analyst does not believe this decision will “fundamentally affect the valuation of the company.” On the contrary, she recommends buying on the weakness. She explains that Trimesta was not a priority for the company and its real value lies in SYN-010 for irritable bowel syndrome and SYN-004 for preventing C. difficile infections. New data on both these programs will become available later in the year.
According to TipRanks, two analysts are currently bullish on the company with an average price target of $9.50, marking over a 600% upside from current levels.