Mizuho Still Not Expecting a Turnaround for Valeant Pharmaceuticals Intl Inc (VRX), Neutral on Depomed (DEPO)

Mizuho analyst Irina Rivkind Koffler came out today with new research notes on a handful of biotechnology stocks. Let’s take a look and see what Koffler has to say about Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Depomed Inc (NASDAQ:DEPO) following their recent earnings releases.

Before we start, as usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Irina Rivkind Koffler has a yearly average return of 16.1% and a 49.8% success rate. Koffler has a 13.5% average return when recommending VRX, and is ranked #198 out of 4628 analysts.

Valeant Pharmaceuticals Intl Inc

Valeant shares are rising nearly 8% to $16.59 in Tuesday’s trading session, after the drug maker announced second-quarter results that were in line with consensus on revenue and above consensus on adjusted EBITDA. Specifically, Valeant reported $2.23 billion in revenue and adjusted EBITDA of $951 million, compared to consensus estimates of $2.23 billion and $910 million, respectively.

Koffler commented, “We think the stock may trade up based on the reported EBITDA of $951 million but we remain unconvinced about the business turnaround based on the following: (1) Weaker than expected sales of Dermatology (-31% Y/Y) that came in below internal expectations; (2) “too good to be true” +16% Y/Y sales growth of Salix, which was in part boosted by over 1 week of inventory stocking and one-time items; (3) The leverage ratio is still > 7x Debt/Adj EBITDA in spite of continued debt repayment; (4) Mgmt. lowered 2017 revenue guidance to $8.7B-$8.9B from $8.9B-$9.10B while maintaining prior EBITDA guidance of $3.6B-$3.75B. Both top and bottom-line guidance were boosted by over $100M in temporary LOE upside that is unlikely to be sustained, and 2018 consensus estimates are still too high, in our view. (5) Finally, there was a pipeline setback after Valeant received its second CRL on glaucoma drug Vyzulta.”

As such, Koffler reiterated an Underperform rating on Valeant shares, with a price target of $8.00, which implies a downside of 52% from current levels.

Depomed Inc

Depomed shares are tumbling nearly 26%, as of this writing, after the pharmaceutical firm lowered its full year revenue guidance to $400-$415 million from $410-$430 million and adj. EBITDA to $107-$117 million from $120-$130 million previously.

Koffler stated, “Our sense is that the takeout thesis may be diminishing in this name due to opioid-related headwinds and lower demand, payer pricing pressure, and less involvement from the company’s activist investors. The company also cited other factors like increased legal expenses and sales force expansion expense as reasons for its lowered guidance. Our stand-alone DCF value for DEPO is currently $8 and we expect weakness in the stock after this earnings update. We will update our PT after digesting the earnings call and speaking with mgmt.”

Koffler reiterates a Neutral rating on Depomed with a price target of $11, which represents a potential upside of 69% from where the stock is currently trading.

Overall, out of the 8 analysts polled in the past 12 months, 4 rate Depomed stock a Buy, while 4 rate the stock a Hold. With a return potential of 207.5%, the stock’s consensus target price stands at $20.


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