Valeant (VRX) Hopes Name Change Will Improve Luck, But ‘Full Recovery’ in Dermatology Still Needed, Says BTIG

On back of a solid swing for VRX's rebounding momentum, BTIG's Tim Chiang sheds light on Q1 earnings and a forthcoming name change.


Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is dancing around a comeback story, not only unleashing a first quarter outclass yesterday, but likewise unveiling its next step away from its debt shadows: a new trade name with a nod to its eye care segment Bausch + Lomb, Bausch Health.

BTIG analyst Tim Chiang sees the rebranding as a solid move forward for the beleaguered biotech giant. All the same, this company’s turnaround has some pivoting left, especially with work in dermatology.

As such, the analyst reiterates a Neutral rating on VRX stock without listing a price target. (To watch Chiang’s track record, click here)

For the first quarter, VRX posted $1,995 million, outperforming the analyst’s $1,959 million forecast, along with $0.88 in adjusted EPS, trouncing the analyst’s $0.61 estimate. The giant’s stronger-than-anticipated results rode a wave of more robust Salix GI revenues, rocketing 40% year-over-year to $422 million. Valeant’s key asset is Xifaxan (rifaximin), designed to treat irritable bowel syndrome with diarrhea, travelers’ diarrhea, as well as for reduction in risk of overt hepatic encephalopathy. This drug was responsible for $275 million in sales for the giant, a 49% year-over-year rise that gained advantage from better sales in non-retail channels to rising promotion in the primary care market, notes Chiang.

The VRX team boosted its 2018 revenue guide by a whopping $50 million up to a range of $8.15 to $8.35 billion, and its adjusted EBITDA outlook to the tune of a $100 million lift to $3.15 to $3.30 billion. Additionally, the company reiterates its operating expense target for the year of roughly $2.925 billion. Though there is no revision to the approximately 13% cash tax rate, Valeant has tweaked its interest expense forecast for 2018 up from $1.65 to $1.68 billion.

On back of the new numbers from Valeant, the analyst has raised his revenue expectations from $8,114 to $8,251 million; EPS from $2.69 to $3.11; and adjusted EBITDA from $3,061 to $3,241 million.

In a nutshell, “We think the Co.’s decision to change its name to Bausch Health and its ticker to BHC in July is a step in the right direction, as the senior management team led by CEO Joe Papa continues to transform Valeant into a new Co. focused on eye care with Bausch + Lomb, gastrointestinal treatments with Salix, and dermatology. While the Co. is benefiting from growth in its B+L and Salix segments, we think the dermatology segment will continue to face declines in CY18. While 1Q results continue to show pockets of growth at the Co., we think it will take a full recovery in the dermatology segment for us to get excited here, as the ~$25.5B debt load is massive relative to the ~$3.2B of EBITDA we est. the Co. to generate in CY18. We think the next important data point will be an FDA approval decision by June 18 on Duobrii (topical lotion for treating plaque psoriasis). On an EV / EBITDA multiple basis, VRX shares trade at ~10x, which is at the upper end of the valuation range in our coverage universe,” Chiang contends.

TipRanks exhibits caution as the majority sentiment on the Street dragging on VRX shares. Out of 13 analysts polled in the last 3 months, 3 are bullish on VRX stock, 6 remain sidelined, while 4 are bearish on the stock. With a loss potential of 10%, the stock’s consensus target price stands at $17.77.

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