Is Bausch Health (BHC) making a mistake in acquiring certain assets of Synergy Pharmaceuticals (SGYP)? Maybe — at least if you ask Wells Fargo’s David Maris. Maris reiterates an Underperform rating on BHC with a price target of $9.00, which implies over 60% downside for the stock. (To watch Maris’ track record, click here)
SGYP’s drug Trulance, designed to treat irritable bowel syndrome, was majorly affected by sales weakness and a highly competitive market along with market-growth that was slower than expected.
“We think BHC stock is up on the idea that this deal improves the sales growth optics for next year and helps fulfill the narrative that BHC has recently been telling investors about having opportunity to do bolt-on deals. Clearly this fits BHC’s current portfolio, and there are likely opportunities for cost cutting. However, we think the opportunity for a meaningful return is limited. We do not expect that a marketed product that has been disappointing in a category facing increasing payor pressure will find a new audience with a different salesforce. In addition, we expect next year will see the approval of Ardelyx’s tenapor as a direct competitor,” Maris said. “We believe investors should ask why, if the pipeline is so robust and the stock is undervalued, BHC would choose to spend cash on deals, vs. paying down debt or eventually buying back stock?”
In sum, Maris feels the acquisition is an inconsequential financial deal and that the company will focus on cutting back costs instead of paying mind to its core business, due to a potential lack of confidence in itself. Maris even suggests the market’s reaction of more than $700 million of added market value for BHC spending of $200 million is unjustified and likely echoes short-covering.
Overall, analysts have mixed opinions about the future of BHC. TipRanks analytics finds out of 12 analysts who are reviewing the stock, 6 are bullish, 5 are sidelined and 1 is bearish. The consensus price target of $28.33, shows a potential upside of about 19% from current levels. (See BHC’s price targets and analyst ratings on TipRanks)