Amid asset sale speculation and the cycle of earnings season, analysts from Mizuho, Maxim, and Merrill Lynch are offering insights into the key players of the biotech sphere: Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Gilead Sciences, Inc. (NASDAQ:GILD), and Pfizer Inc. (NYSE:PFE). Let’s take a closer look:
Valeant Pharmaceuticals Intl Inc
On the heels of Wall Street Journal revealing the firm might be selling its Salix asset to Takeda, Valeant shares were jumping over 30%, which Mizuho analyst Irina Koffler dismisses as an “overreaction in the stock.”
Ahead of VRX’s third-quarter print, the analyst believes that the possibility of a “Salix sale resolves nothing” and therefore reiterates a Neutral rating on shares of VRX with a $25 price target, which represents a 29% increase from current levels.
Upon hearing the journal mill chatter, Koffler is not fazed, opining, “VRX shot up over 33% on speculation of a Salix asset sale to Takeda. We ran the numbers and think the impact to the business is nominal, and are staying with our Neutral rating into the November 8 earnings call.”
Moreover, the analyst explains, “The deal is plausible in our view, since Takeda could potentially realize cost synergies from the transaction. Our initial look at the numbers suggests that valuation on VRX won’t change much (or could worsen) post-deal, and we therefore expect the stock to pare back some gains at the open.”
Koffler adds that essentially, “The remaining assets don’t warrant a higher multiple, in our view.”
Overall, “The top line could be further weakened with additional divestitures and we therefore do not expect investors to assign a higher value to the remaining assets. We don’t expect Takeda royalties to be significant,” Koffler surmises.
For reference, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Irina Rivkind Koffler is ranked #124 out of 4,164 analysts. Koffler has a 42% success rate and garners 12.8% in her annual returns. When recommending VRX, Koffler gains 18.2% in average profits on the stock.
TipRanks analytics exhibit VRX as a Hold. Out of 11 analysts, 3 are bullish on Valeant stock, 6 remain sidelined, while 2 are bearish on the stock. With return potential of nearly 65%, the stock’s consensus target price stands at $31.85.
Gilead Sciences, Inc.
Gilead posted earnings on November 1st showing revenues taking a near 10% fall compared to this quarter last year, showing its HCV franchise continues to take a hit. HIV sales are the firm’s saving grace along with the newest launch of Epclusa, the firm’s oral pipeline drug designed to treat chronic Hepatitis C Virus infection.
Caught in the middle amid a downfall in HCV revenues but surging HIV sales, Maxim analyst Jason Kolbert reiterates a Hold rating on GILD without listing a price target.
For the third quarter, GILD released total revenues of $7.5 billion, coming up short compared to $8.3 billion reached in the third quarter of 2015. Meanwhile, total antiviral product sales, an amalgamation of HCV and HIV product sales reached $6.8 billion, also down from this time last year’s $7.7 billion. The HCV franchise fell to $3.3 billion from the third quarter of 2015’s $$4.8 billion, a consequence of waning sales of Harvoni and Sovaldi. Kolbert notes a positive for the firm is that this weakness sees a partial offset thanks to the launch of Epclusa in the United States as well as the European Union. Meanwhile, HIV product sales conversely rose from $2.9 billion in the third quarter of 2015 to $3.5 billion this quarter on back of the updatke of Genvoya, Descovy, and Odefsey.
Non-GAAP net income hit $3.7 billion at $2.75 per diluted share. GILD closed the quarter with a cash total of $31.6 billion and has maintained full-year outlook initially updated in July of 2016. The biotech firm’s net product revenues range from $29.5 to $30.5 billion. Non-GAAP Expense guidance on R&D calls for $3.6 to $3.8 billion and looks for a range of $3.1 and $3.3 billion on SG&A.
As the analyst sees the situation, “Gilead’s 3Q16 revenues further slipped, primarily as a result of Harvoni and Sovaldi sales declines. We see Epclusa revenues being an offset during the quarter and continuing to cannibalize in the long term. However, in the short term we believe Gilead needs to explore growth opportunities outside the HCV franchise. A strong balance sheet ($31.6B) allows the company potential for M&A to acquire growth.”
“Fundamentally, the company drove free cash flow of just under $5B in 3Q16, allowing it to be opportunistic (e.g. M&A to acquire growth), pay dividends, and make share repurchases. We still believe in Gilead and its long-term potential. However, in the short term, we continue to see a period of consolidation in the stock,” Kolbert contends.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, analyst Jason Kolbert is ranked #4,018 out of 4,164 analysts. Kolbert has a 23% success rate and confronts an 18.9% loss in his yearly returns. When suggesting GILD, Kolbert forfeits 7.9% in average profits on the stock.
TipRanks analytics demonstrate GILD as a Buy. Based on 13 analysts polled in the last 3 months, 9 rate a Buy on GILD, while 4 maintain a Hold. The 12-month price target stands at $100.50, marking a 38% upside from where the stock is currently trading.
Pfizer released third-quarter results on November 1st that for Merrill Lynch analyst Colin Bristow while “not bad” were also “not great.” Nonetheless, the analyst likes the stock’s long-term even though he acknowledges there is “little to move the needle in the near-term.”
Therefore, Bristow reiterates a Buy rating on shares of PFE while lowering his price target from $40 to $36 price target, which represents a 20% increase from where the stock is currently trading. Additionally, the analyst trims projections and has removed bococizumab, its investigational Proprotein Convertase Subtilisin Kexin type 9 inhibitor (PCSK9i) designed to lower bad cholesterol, from his model. Originally, the analyst had expected the pipeline drug would bring in peak sales of $1 billion in 2021 before the biotech giant discontinued development. For Bristow, this shocked him as a “significant negative surprise and a major dent to sentiment around PFE’s pipeline and development capabilities.”
Ultimately, “Overshadowing the quarter was the announcement that PFE is discontinuing development of its PCSK9 antibody, bococizumab […] We updated our model to account for the 3Q16 results, management commentary and discontinuation of PCSK9 program […] While lack of catalysts and concerns around growth will likely keep PFE range-bound in the near-term, we view PFE as attractively valued, with a history of utilizing balance sheet strength for business development/M&A, solid dividends (current yield ~4%) and share buybacks. We believe PFE’s attractive valuation (2nd lowest multiple in group, ~11x consensus ’18 EPS) and dividend yield could favor PFE in the current risk-averse market,” Bristow concludes.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, two-star analyst Colin Bristow is ranked #2,727 out of 4,164 analysts. Bristow has a 47% success rate and loses 19.9% in his annual returns. When rating PFE, Bristow faces a loss of 4.8% in average profits on the stock.
TipRanks analytics indicate PFE as a Buy. Out of 10 analysts, 6 are bullish on Pfizer stock, while 4 remain sidelined. With a return potential of nearly 32%, the stock’s consensus target price stands at $40.00.