Another day another Valeant Pharmaceuticals Intl news saga once again – so here is the latest story. After the Senate committee moved to begin contempt proceeding against Valeant CEO Michael Pearson, the company says Pearson now in talks with committee – it is a bit confusing. And Addyi has been a flop but here is what the sell side is saying.
Valeant Pharmaceuticals Intl – analysts react
We took a closer look at a number of Valeant’s U.S. segments with the goal of sizing up the extent to which management’s 2016 guidance (expected 2016 EBITDA of $5.6B-$5.8B) is realistic. There are obviously quite a lot of moving parts and certain items that are not yet quantifiable (e.g., the extent to which VRX’s damaged relationships with customers will impact volumes). Nonetheless, after looking at historical pricing for over 90 U.S. products,
and doing a detailed dive into prescription (Rx) volume trends across the U.S. business (see below for more details), our conclusion is that there is significantly more downside risk to 2016 guidance than upside potential.
After reaching “crisis of confidence” levels following 4Q15 earnings, developments of the last several days seem to indicate that VRX is turning a corner. The most concerning risk factors have been alleviated: 1) no additional accounting misstatements were found following completion of the internal ad hoc review, 2) VRX committed to filing its 10-K by 4/29/16, and 3) creditors and bondholders agreed to extend or waive technical covenants related to reporting deadlines. At this time, it’s worth reminding investors of the significant brand value of its multiple franchises, as well as the steady demand of its key products to date. Our initial SOTP analysis derived an equity value of $65/share, but a deeper SOTP can yield up to $90-95/share in equity value, confirming again that current levels do not accurately reflect this asset value. With liquidity to satisfy debt obligations, obviating the need for forced asset sales, we do not believe VRX should not be trading at distressed levels.
From our perspective, it is unlikely that Valeant would seek to sell core assets such as the Bausch + Lomb division or its Salix franchise near-term. There are likely to be a number of reasons for this. Firstly, we believe that if potential acquirers view Valeant as a distressed seller, they would not be willing to pay Valeant a fair price. Second, we consider Valeant’s ability to generate cash flows from its core assets to be significantly greater than might be the case if those assets were to be acquired by entities taxed at the U.S. statutory corporate tax rate. Thus, only acquirers that are positioned in a manner similar to Valeant