Analysts Cautious on Valeant Pharmaceuticals Intl Inc (VRX) and Gilead Sciences, Inc. (GILD); Here’s Why

It’s not all bullish in the biotech sector. Analysts remains bearish and neutral on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Gilead Sciences, Inc. (NASDAQ:GILD), respectively, as Valeant faces legal battles and Gilead gains new FDA dosing approval for a pipeline drug in testing.

Valeant Pharmaceuticals Intl Inc

The SEC released documents two days ago related to its correspondence with Valeant about recent tax issues, prompting Wells Fargo analyst David Maris to share his views on the investigations. This release comes while Valeant is juggling an SEC investigation, an IRS audit, and Attorney General investigations from several states.

Maris points to the SEC documents as “concerning” because they illustrate “the SEC’s lack of comfort with and its criticism of Valeant’s reporting.” The analyst points out foreboding phrases used by the SEC, such as a clause that reads: “we find this presentation to be potentially misleading.” The SEC disagrees with Valeant’s actions to change prospective taxes. Maris explains, “The SEC states that while it had informed Valeant of its concerns regarding the reporting of Valeant’s tax provisions, the SEC did not suggest any particular tax rate that would be appropriate for the company’s prospective reporting.”

The analyst is continuing to review Valeant’s several legal predicaments, but notes that “this correspondence could add gravity to these investigations.” Maris elaborates, “Valeant shares currently carry too much risk for us to be comfortable recommending them as an investment. Our concerns stem from a number of factors, including opaqueness related to acccounting issues, what we see as balance sheet risks, unanswered questions related to business practices, and confusion over how the Walgreens deal actually benefits Valeant.”

Maris reiterates an Underperform rating on Valeant but lowers his valuation range from $27 to $31 down to $25 to $30, the midpoint of which marks a relatively flat upside to current levels.

According to TipRanks, Maris currently has a 63% success rate recommending stocks with a +7.1% average return per rating. Out of the analysts currently covering Valeant, 33% are bullish, 19% are bearish, and 48% are neutral. The average 12-month price target between these analysts is $47.43, marking a 75% potential upside from current levels.

Gilead Sciences, Inc.

Brian Abrahams of Jefferies weighs in on biotech giant Gilead following announcements highlighting leadership changes and the FDA approving higher dosages of a drug. Abrahams provides a closer look on these two updates, but remains on the sidelines.

The analyst explains that Kevin Young, a former executive at Gilead, will now return to the company as COO, replacing Paul Carter. Abrahams notes that this will be a smooth transition thanks to “Young’s strong familiarity with the HIV/HCV commercial dynamics.” Dr. Marty Silverstein will become the new EVP of Strategy, which Abrahams points to as a good choice thanks to Silverstein’s “background in drug reimbursement/strategy,” which will “provide valuable insights to GILD as they continue to navigate a dynamic payer environment in HCV (and likely, in the future, in HIV), generating pharmacoeconomic and pricing intelligence in emerging R&D focus fields such as NASH, as well as approaching markets for potential future acquisitions.”

Next, Abrahams points to the FDA’s approval on higher filgotinib dosing for Phase 3 testing. Gilead is working with Galapagos NV to produce filgotinib to treat rheumatoid arthritis and other inflammatory diseases. Now, filgotinib will be tested at two dosage levels: 100mg and 200mg. The analyst sees this dosage testing approval as “incrementally positive, given that the 200mg dose could provide better efficacy, and while the need to explore two doses (rather than just 200mg) may modestly increase the ph.III costs, it also does provide a fallback dose if 200mg has any issues.”

While the analyst views these two updates as positives, he points out that significant “pipeline progress and/or M&A [are] still important for meaningful share inflection.” Thus, he reiterates a Hold rating on the company with a $96 price target, marking an 11% potential upside from current levels.

According to TipRanks, Brian Abrahams has a 64% success rate recommending stocks with a +11.9% average return per rating. Out of the analysts currently covering Gilead, 67% are bullish and 33% are neutral. The average 12-month price target between these analysts is $111.91, marking a 29% potential upside from current levels.

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