Valeant Pharmaceuticals Intl Inc Faces Uncertain Future, Endo Not the Most Attractive Near-Term Stock

Valeant Still Has Higher Risk Profile Despite ‘Solid’ Q2 Results

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) shares crashed 10% yesterday after the troubled biotech giant revealed its second-quarter earnings Tuesday evening, making it clear this stock still has challenges in tow to surmount before a full comeback can be made in investor sentiment.

Canaccord analyst Neil Maruoka notes that while Valeant’s quarter was a “solid one,” largely meeting his expectations and outperforming on adjusted EBITDA, he believes the real question is one of “durable operating momentum.” Even though Xifaxan, the giant’s gut drug and biggest product as well as Bausch & Lomb’s international segment each surged nicely this quarter, the analyst remains “not yet convinced” as to whether the giant can reverse course to stabilize for the long-term.

Factoring in a lesser enterprise value (EV) in comparison to other peers, the analyst reiterates a Hold rating on VRX while hiking the price target from $14 to $16, which represents a close to 14% increase from where the shares last closed. (To watch Maruoka’s track record, click here)

Maruoka highlights, “The delayed genericization of several products including Mephyton, Syprine, and Isuprel have partially offset the negative impact of divestitures; however, this generic competition is nonetheless expected before the end of the year and we believe is likely to result in the erosion of ~$300 million in annualized revenue in 2018. Further, we believe that Valeant continues to face challenges in other areas of its business, including dermatology (which saw a 31% YoY top-line organic decline in Q2). […] Given Valeant’s elevated leverage, lower growth, and higher risk profile, we believe that a discount to the specialty pharma peer group is warranted.”

Additionally, the analyst sees a veil of murky fog circling prospective growth driver, glaucoma drug Vyzulta, which received a Complete Response Letter (CRL) from the FDA. “While the market seems to have shrugged off this news in the wake of a solid Q2, we believe this nonetheless creates significant uncertainty around the timing of a potential growth driver for Valeant,” surmises Maruoka.

In reaction to the print, the analyst has cut back on forecasts for 2018 to take under account the anticipated genericization of Mephyton, Syprine, and Isuprel, while likewise eyeing the weaker performance of Jublia. Therefore, the analyst has lowered EBITDA expectations for 2018 from $3.82B to $3.63B.

TipRanks analytics indicate VRX as a Hold. Out of 14 analysts polled by TipRanks in the last 3 months, 3 are bullish on Valeant stock, 8 remain sidelined, and 3 are bearish on the stock. With a return potential of nearly 22%, the stock’s consensus target price stands at $17.15.

Endo Bids Adieu to Key Overhang- But Needs More Time to Rebound

Endo International plc – Ordinary Shares (NASDAQ:ENDP) handed in second-quarter financial results Wednesday after the bell that exhibited a top-line beat on revenue, thanks to strength in the firm’s generics business. Nonetheless, shares slid roughly 3% yesterday, as Endo remains a ‘show me’ tale- particularly considering guidance for the year on revenue and EPS was slightly clipped.

Canaccord analyst Dewey Steadman continues to veer on the side of caution, even though he appreciates that “Mesh uncertainty [has been] lifted,” with the firm reaching significant resolution on all existing domestic mesh product liability claims, which allows for renewed focus on execution and de-levering. Additionally, the analyst praises Endo’s surge in revenue and cost-cutting that helped Endo deliver a solid print.

However, “In isolation, mesh certainty is clearly a positive outcome but we think Endo needs some time to both address the near-term cash call related to the settlement and build flexibility over time through continued deleverage. As such, we remain on the sidelines,” explains Steadman.

For now, the analyst reiterates a Hold rating on ENDPO with a $12 price target, which implies a 51% increase from where the shares last closed. (To watch Steadman’s track record, click here)

The biotech firm anticipates that it will have enough cash on its balance sheet and through prospects over the next couple of years to fuel payments on mesh product liability claims, most of which the analyst anticipates will be paid next year. For Steadman, “This lifts a key overhang on the Endo story, in our view, and we think the company can move on strategically from the mesh liability event.”

Steadman concludes with hope that the stock can evolve into a more enticing short-term investment, even if not yet, believing, “While we appreciate Endo’s transformation into a more pure-play generic with additional growth potential through brands like Xiaflex, it’s a difficult time to invest in generics and especially Endo with high relative leverage and a substantial NT cash call. However, we think through covering its bases and executing as the generics business inevitably rebounds after a difficult period of customer contraction, Endo could become a more investable story. However, we’re on the sidelines given more attractive NT opportunities in the space.”

For the second quarter, Endo posted revenue of $876 million, far exceeding the analyst’s forecast of $822 million and consensus of $833 million. U.S. brands revenue hit $245 million, topping the analyst’s expectations of $239 million as well as consensus of $251 million. U.S. generics revenue amassed $563 million for the quarter, outclassing the analyst’s estimate of $533 million and consensus of $525 million. International revenue of $67 million beat the analyst’s forecast of $50 million and consensus of $57 million.

With the withdrawal of opioid painkiller Opana ER and the prior announced divestiture of Mexican subsidiary Somar to Advent International, Endo management has taken guidance down for the year: reigning in revenue from $3.45 to $3.60 billion down to $3.8 to $3.53 billion, and adjusted EPS from $3.45 to $3.75 down to $3.35 to $3.65.

TipRanks analytics demonstrate ENDP as a Hold. Based on 13 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on Endo stock while 10 maintain a Hold. The 12-month average price target stands at $13.55, marking a nearly 71% upside from where the stock is currently trading.

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