Valeant Pharmaceuticals is back on a downward trend today on what has been a bumpy ride over the last few weeks. Shares fell by as much as 3.8% to $80.50 per share during regular trading hours today, and analysts are generally unhappy with the business update provided by management. Multiple firms are cutting their price targets for the drug maker as it works to rebuild its specialty pharmacy network in the wake of accusations raised by Citron Research.

Valeant VRX
Chart via S&P CapIQ

More questions for Valeant

Nomura analysts Shibani Malhotra and Austin Nelson said Valeant’s update didn’t answer all their questions, but they were encouraged by the company’s willingness to be as transparent as possible. They think improved transparency will start to rebuild Valeant’s credibility among investors, although they note also that the company faces disruptions in operations while rebuilding its network of specialty pharmacies.

The accusations levied against Valeant were more focused the specialty pharmacy Philidor, which Valeant has since cut ties with. Since Citron’s first reports on Valeant, it has backed down a bit from its allegations of accounting fraud. Nomura analysts see the potential for negative impacts to the Dermatology segment because the segment received the most benefits from distribution through the specialty pharmacy, but management expects this impact to be short term as they are looking to contract with new specialty pharmacies within the next three months. Valeant is also working through disruptions in the pricing of its neurology drugs. The

Because of these issues, the Nomura team cut their price target for the drug maker from $220 to $175 per share but maintained their Buy rating. The analysts add that their “conservative base case” leaves room for upside of 109% and that Valeant’s Consumer, Gastroenterology, and Contact Lens businesses continue to post strong results.

Valeant’s other segments still growing

Stifel analyst Annabel Samimy and her team outlined the strength in each of Valeant’s other businesses, including quarter to date growth in prescriptions on all of the company’s gastroenterology drugs. Ophthalmology prescriptions are expected to show quarter over quarter single digit growth, while the U.S. Contact Lens business is growing by more than 20% year over year.

Valeant’s Surgical business is showing growth in the low single digits even though the overall market is flat to declining, and the Dentistry segment is showing year over year growth in the double digits. The drug maker’s Generics arm is flat year over year, while the oncology drugs are showing quarter over quarter growth in the mid-single digits.

Despite the strong growth in these other segments, Samimy cut her price target for Valeant Pharmaceuticals from $285 to $200 per share but maintained her Buy rating on the stock. She expects the headline noise to weigh on shares for now.

Focus shifts to balance sheet

Management said on their update call that they’re focusing on deleveraging the company’s balance sheet and that they expect to stay in its debt covenants. They’re aiming to reduce debt and leverage. This year Valeant has $23 million in payments still required, according to Stifel analysts, and no more significant debt due until 2018. Because of the goal to reduce debt, the drug maker will halt its previous plan to buy back shares.

The Stifel team likes the fact that Valeant doesn’t have any funding needs in the near term. Its debt balance stands at $30.9 billion, while its interest expenses are at $1.6 billion.

Other price target cuts

JPMorgan analyst Chris Schott and team have also slashed their price target for the drug maker, pushing it down from $265 to $225 but maintaining their Overweight rating on the stock. They say the fundamentals remain intact and note that the stock is trading at less than six times 2016 estimates and five times 2017 estimates even though Valeant has a product portfolio that spans multiple categories.

RBC Capital Markets analyst Douglas Miehm also cut his target for Valeant, pushing it down slightly from $213 to $206 per share but maintaining his Outperform rating. He thinks the stock will remain range-bound for now and is encouraged by the focus on paying down debt.

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