Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Kite Pharma Inc (NASDAQ:KITE) were two predominant needle-movers yesterday in the volatile biotech market, with Valeant shares deescalating on back of 2017 guidance that is spooking investors and analysts alike, and Kite shares surging nicely thanks to positive results in NHL. BTIG is weighing in on both biotech companies from the sidelines, considering Valeant’s debt woes and Kite’s financial picture in the larger scheme. Let’s take a closer look:
Valeant In Desperate Need of Restructuring
Valeant shares fell 5% yesterday after the troubled biotech giant posted a fourth-quarter print revealing unfavorable guidance for 2017. BTIG analyst Tim Chiang joins the earnings conversation, unimpressed and wary on the formidable risk factor facing the giant. As such, the analyst reiterates a Neutral rating on shares of VRX without listing a price target.
For 2017, the VRX management team calls for revenue to range from $8.9 to $9.1 billion and adjusted EBITDA to range from $3.55 to $3.7 billion. VRX maintained expectations to relieve $5 billion from its debt load from divestiture proceeds and free cash flow, which if so, the analyst anticipates an added $2.5 to $3 billion in assets will need to be sold by the end of the year. Operating expenses will include SG&A of $2.6 to $2.7 billion coupled with R&D of $420 to $435 million.
Chiang notes, “The single largest expense in 2017 will be interest of ~$1.85B, to service the ~$28B of pro forma debt the Co. has on its balance sheet. While management indicated that it plans to remain in compliance with its credit agreement covenants, we think the Co. is sitting close to the edge with its interest coverage and debt leverage covenants.”
In reaction, the analyst has reigned in his projections for 2017, taking revenue from $9.49 billion down to $8.8 billion, and EPS from $4.79 down to $3.17 as a reflection of VRX’s financial targets. Additionally, the analyst notes his revised forecasts take under account VRX bringing in approximately $3.4 billion of EBITDA, which is a fall from $3.85 billion, adding that this includes the sale of the following skin care assets: CeraVe, AcneFree, and AMBI, as well as Dendreon.
“While the management team, led by CEO Joe Papa and CFO Paul Herendeen, will continue to try to stabilize the Co.’s key product segments (B+L, GI, dermatology, etc.), we believe investor focus also rests on management (and the Board’s) ability to execute on asset sales. We also think a restructuring of the debt may be necessary in order to give the Co. more time to stabilize the Co.’s revenues and cash flows. In either case, we think the risk for equity investors remains high. We maintain our Neutral rating on VRX shares, and believe a recovery is unlikely to occur near-term,” Chiang surmises.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Tim Chiang is ranked #370 out of 4,512 analysts. Chiang has a 63% success rate and garners 17.0% in his yearly returns. However, when recommending VRX, Chiang forfeits 21.7% in average profits on the stock.
TipRanks analytics exhibit VRX as a Hold. Out of 13 analysts polled by TipRanks in the last 3 months, 2 are bullish on Valeant stock, 8 remain sidelined, and 3 are bearish on the stock. With a return potential of 26%, the stock’s consensus target price stands at $17.17.
Kite Takes One Step Closer to FDA Approval in NHL
Kite shares were rising close to 13% yesterday following fourth quarter earnings and a clinical update showing positive top-line from the primary 6-month analysis for KTE-C19 in aggressive Non-Hodgkin lymphoma (NHL) from the Zuma-1 trial.
Though BTIG analyst Dane Leone cheers the encouraging efficacy results, he nonetheless remains sidelined on Kite’s overall financial picture, reiterating a Neutral rating on KITE without suggesting a price target.
Delving into the trial results, the analyst comments, “At 6 months ORR was 41% and CR was 36%, with 35% ORR and 31% CR in the DLBCL cohort. The results reflect the trends seen at 3 months, supporting the likelihood of sustained durability at 12 months. Median OS has not been reached, but should show improvement relative to historical controls [SCHOLAR: CR (8%), mOS (6.6%)].”
“Overall, the data looks supportive of a plateauing response from the prior dataset, inline with other studies where CRs at 6 months proved to be durable. Based on the current dataset we would expect drug approval despite lingering concerns around neurotoxicity. KITE expects to complete rolling BLA by the end of the 1Q17 with US approval and launch by YE2017. The challenge is now on Juno (JUNO, Neutral) to prove with that their JCAR products can indeed produce better response and safety profiles by using defined product parameters (CD4/ CD8 ratios etc). We remain Neutral rated as our commercial expectations of KTE-C19 remain well below consensus,” Leone contends.
Moving forward, KITE expects a PDUFA this coming November as well as an EMA filing later this year.
According to TipRanks, five-star analyst Dane Leone is ranked #206 out of 4,512 analysts. Leone has a 71% success rate and gains 14.5% in his annual returns. When recommending KITE, Leone earns 0.0% in average profits on the stock.
TipRanks analytics show KITE as a Strong Buy. Based on 12 analysts polled by TipRanks in the last 3 months, 10 rate a Buy on Kite stock while 2 maintain a Hold. The 12-month average price target stands at $76.78, marking a nearly 4% downside from where the stock is currently trading.