Why One Key Analyst Believes That Valeant Is Kicking the Can in Its Restructuring Deal

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Valeant Pharmaceuticals International Inc. (NYSE: VRX) has been in the spotlight for a couple years and is now fighting to stay alive. The company initially brought in new executives and tried new initiatives to turn around the company, but shares still have dropped. In its most recent attempt, Valeant announced that it intends to refinance some of its debt. One key analyst thinks that this might be a sign to abandon ship.

24/7 Wall St. has included some of the key points from the Wells Fargo analyst report, as well as what a few other analysts have recently said about Valeant.

Wells Fargo maintained an Underperform rating. The brokerage firm said in its report:

Valeant announced this morning that it intends to refinance some of its debt. We are still working through how much this will negatively impact consensus EPS, but we believe that it will lower consensus EPS and believe this is one reason (in addition to SEC comments on VRX adjusted earnings) that last week VRX abandoned providing EPS guidance since the company knew EPS was coming down.

Refinancing, to Wells Fargo, is a clear indication that the $8 billion of asset sales Valeant hoped for is off the table. The firm further considers Valeant’s refinancing as a last attempt to salvage the company from what it would consider a likely default and restructuring.

However, it is unlikely the last we have heard of these risks. Wells Fargo believes that there are significant risks some investors are not considering, such as:

  • Legal suits (10K has 22 new product liability suits) plus shareholder suits, investigations, and an insider trading suit
  • Patent challenge of Xifaxan
  • Turnover – VRX has acknowledged significant turnover recently in its salesforce.
  • Product launches – Siliq in 2H17 is likely to be expensive and potentially not profitable. Analysts said that they had recently met with a peer company that indicated given the spending by the market leaders in the category and given Valeant has to split the profits with Astra-Zeneca for this drug, this CEO does not see the product as ever being a meaningful contributor.

Wells Fargo suspects that equity holders will be left with less and less of the profit. Furthermore, Wells Fargo expects that Valeant will be a company with fewer options for growth, little takeover chance, a big number of potential legal liabilities and the patent expiry settlement of Xifaxan looming.

A few other analysts commented:

  • Mizuho reiterated an Underperform rating with a $9 price target.
  • Rodman & Renshaw has a Neutral rating with a $17 price target.
  • BTIG reiterated a Neutral rating.
  • BMO Capital Markets reiterated a Market Perform rating with a $19 price target.
  • JPMorgan has a Hold rating with a $15 price target.
  • Jefferies has a Buy rating with an $18 price target.

Shares of Valeant were last seen down 5% at $12.41, with a consensus analyst price target of $21.34 and a 52-week trading range of $12.30 to $70.43.