In the battle of the biotech giants, with the battered Valeant Pharmaceuticals Intl Inc (NYSE:VRX) in one corner, hanging on a limb over a debt cliff, and Gilead Sciences, Inc. (NASDAQ:GILD) in another corner, with the potential to back itself out thanks to some exciting NASH data just released, where do analysts fall in their predictions on these stocks? This week, analysts became more apprehensive on Valeant, and that’s even with J.P. Morgan modeling for a first quarter beat. Conversely, Gilead made a solid step forward with its positive data read-out announced at the International Liver Congress, leaving Maxim intrigued by NASH drug development potential. Let’s explore:
Investing in Valeant is a Shot in the Dark
Valeant shares are on a 5% stumble today as analysts across the Street are pointing out some grave concerns shackling the troubled biotech giant’s prospects in the grand scheme of its debt burden. When it comes to investing wisely, it seems that Valeant has increasingly become a liability.
J.P. Morgan analyst Chris Schott might not be surprised should Valeant outperform expectations, but even so, challenges loop around the positives, threatening to submerge the giant. Therefore, the analyst reiterates a Neutral rating on shares of VRX while chopping the price target from $15 to $10, which represents a 17% upside from where the stock is currently trading.
Schott believes that while there may be a “reasonable” foundation for the first-quarter, he nonetheless warns, “[…] we remain cautious given long road to recovery ahead. We see the potential for modest upside to consensus EPS at $0.81 but this view is driven by shorter duration assets. At the same time Valeant’s broader core franchise recovery (particularly GI / Derm) remains highly uncertain and valuation (~9.2x 2017 EV/EBITDA) does not screen inexpensive, in our view. Performance in core product categories will remain the area of focus, and we will watch for management comments on debt paydown, assets sales, and the recent refinancing transactions as well as the upcoming Siliq (IL-17) launch.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst Chris Schott is ranked #2,182 out of 4,562 analysts. Schott has a 53% success rate and realizes 1.4% in his yearly returns. However, when recommending VRX, Schott forfeits 31.4% in average profits on the stock.
Wells Fargo analyst David Maris finds reason to not simply err on the side of caution, but sees cause to ditch the stock, reiterating an Underperform rating on shares of VRX while cutting the price target from $10 to $13 down to $7 to $9.
When glancing ahead to the deb picture throughout the next few years, Valeant claims maturities will circle $1.5 billion. Yet, by 2020 and forward, maturities will accelerate at a faster pace, considering VRX must pay up $5.8 billion in three years as well as a hefty sum of $22.2 billion between 2020 and 2023.
Ultimately, “We believe VRX will not generate enough free cash flow between now and 2023 to pay its maturities. Will VRX be in a better positon in the coming years to once again extend the maturities or perhaps reduce debt via an equity offering or asset sales? Maybe. However, we believe risks such as the patent challenge to Xifaxan, potential legal liabilities, and the potential difficulty in executing sizable attractive divestitures could mean that the refinancing picture looks worse in three years,” surmises Maris, underscoring the troubled biotech giant’s overwhelming risk factor as the root of his bearish take.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, analysts Chris Schott and David Maris have a yearly average return of 1.4% and 12.7% respectively. Schott has a success rate of 53% and is ranked #2182 out of 4562 analysts, while Maris has a success rate of 54% and is ranked #610.
TipRanks analytics show VRX as a Hold. Out of 15 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on Valeant stock, 9 maintain a Hold, while 3 issue a Sell. The 12-month average price target stands at $14.36, marking a nearly 69% upside from where the stock is currently trading.
Clinical Step Up for Gilead in NASH
Gilead encouraged investors with a solid data read-out for its drug GS-0976 in the indication of Nonalcoholic Steatohepatitis (NASH) during The International Liver Congress (ILC) at the 53rd Annual Meeting of European Association for the Study of the Liver (EASL). The biotech giant’s pipeline drug’s improvements in liver fat content as well as noninvasive markers of fibrosis in the 10 NASH patients evaluated proved to be significant.
Maxim analyst Gabrielle Zhou sees some promise here, but not enough to sway her from the sidelines, reiterating a Hold rating on shares of GILD without listing a price target.
“The NASH space continues to be active with multiple companies like Gilead, Conatus and Galmed each heading towards proof of concept data with their respective NASH drugs. We also continue to see the evolution of noninvasive biomarkers that will play key roles in NASH drug development,” explains Zhou.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, one-star analyst Gabrielle Zhou is ranked #3,691 out of 4,562 analysts. Zhou has a 32% success rate and faces a loss of 2.4% in her annual returns. When recommending GILD, Zhou earns 0.0% in average profits on the stock.
TipRanks analytics demonstrate GILD as a Buy. Based on 19 analysts polled by TipRanks in the last 3 months, 12 rate a Buy on Gilead stock and 7 maintain a Hold. The 12-month average price target stands at $80.87, marking a nearly 23% upside from where the stock is currently trading.