The biotech sector has had a cruel start to the year. The Nasdaq Biotechnology Index (IBB) is down 23% so far in 2016, and is now off about 38% since its July peak. Among the equities in focus today are pharmaceutical giants Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Gilead Sciences, Inc. (NASDAQ:GILD). Let’s take a look and see what analysts have to say about the influence of recent Cummings’ memo on Valeant, and what to expect ahead of Gilead earnings this evening.
Valeant Pharmaceuticals Intl Inc
BMO Capital analyst Alex Arfaei reiterated a Market Perform rating on shares of Valeant Pharma, with a price target of $133, after the Cummings’ office released a memo quoting a few internal Valeant emails, confirming that the company’s business model depended on drug-price increases.
Arfaei commented, “The Memo highlights what most on the Street already know, that this was a price-driven deal. However, the memo seems to suggest that this is the norm at Valeant by highlighting an email from an outside consultant to Valeant’s CEO: “In a nutshell, most of the products reviewed are not on the radar and have material pricing potential.” Again, aggressive price increases on smaller products, where there is often a supply/demand inefficiency is common in the Pharma industry and certainly not limited to Valeant, something that we believe most investors know. Nonetheless, revealing Valeant’s approach here certainly doesn’t help rebuild investor confidence.”
The analyst concluded, “While we continue to believe that the stock is undervalued relative to what we believe to be the underlying fundamentals, we believe that it will likely take some time for Valeant to regain investor confidence, hopefully by increasing visibility and consistency in its reporting. Investors should expect continued volatility as headline risk with VRX has not subsided.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Alex Arfaei has a yearly average return of 3.1% and a 56% success rate. Arfaei has a -13.6% average return when recommending VRX, and is ranked #816 out of 3632 analysts.
Gilead Sciences, Inc.
With Gilead preparing to release earnings this evening, Evercore analyst Mark Schoenebaum weighs in with a few expectations. The analyst rates GILD stock a Buy with price target of $115, which represents a potential upside of 39% from where the stock is currently trading.
Schoenebaum wrote, “Currently IMS scripts for Gilead’s HepC Harvoni/Sovaldi indicate a slowdown in the US after peaking earlier in 2015, so investors are interested if this declining trend is something that will continue in 2016 and beyond or there is still potential for further growth. In addition, investors have little visibility on ex-US HepC sales and will be listening for additional color regarding sales in Europe as well as Japan, as ex-US HepC sales could become a major source of future growth for the franchise. Also recall that the prices in Japan for HepC treatments will be lowered in 2016, but it is not clear what kind of impact it will end up having on Harvoni/Sovaldi uptake and total sales in Japan.”
The analyst continued, “Another important focus of the call will be GILD’s HIV franchise, as investors will be listening on any comments about potential share loss to GSK/ViiV as well as management’s expectations for the timeline of switching patients to the next generation of HIV treatments (TAF). Initial sales of Genvoya – the first single-pill TAF regimen approved in November will also be a focus.”
According to TipRanks.com, analyst Mark Schoenebaum has a yearly average return of 12.4% and a 64% success rate. Schoenebaum has a 8.4% average return when recommending GILD, and is ranked #715 out of 3632 analysts.
Out of the 23 analysts polled by TipRanks, 19 rate Gilead stock a Buy, while 4 rate the stock a Hold. With a return potential of 56%, the stock’s consensus target price stands at $129.10.