It may not be possible for Valeant Pharmaceuticals (VRX) to wind down its massive debt stack as quickly as expected over the coming years, analysts with Deutsche Bank said in a recent investment note.
While Valeant is on course to reduce its precarious balance-sheet leverage, the $5 billion that the drugmaker expect to offload from its $31 billion debt stack over the next 18 months may be overstated, especially as maturities loom, analysts Gregg Gilbert and Greg Fraser wrote. In fact, Valeant may even need to tack on an additional $1.5 billion in 2017 to fill a "capital hole" in addressing costs associated with such maturities, they added.
Deutsche Bank nevertheless re-instated coverage on Valeant Tuesday with a Hold and $30 price target vs. Valeant's closing price of $27.10 Monday. The analysts' new model highlights a range of possible benefits that could be unveiled on the company's mid-October earnings call, including improved debt-restructuring plans, strategic asset divestitures, or a revised outlook by Valeant's newly seated CFO Paul Herendeen, a former Zoetis (ZTS) executive named last month.
Deutsche Bank now expects Herendeen's performance guidance for Valeant to be more tightly monitored than in the past, based on a "meet or beat" culture aimed at hitting targets. Gilbert and Fraser also noted they "do not factor in any fines for ongoing investigations and lawsuits."
Valeant shares are down 88% over the past 12 months, largely based on controversy surrounding price hikes on Valeant's acquired drugs and improper sales bookkeeping tied to a former partnership with mail-order pharmacy Philidor. Those issues have brought increased Congressional scrutiny on the Canadian drugmaker.
Not all in the analyst community are so confident Valeant has sidestepped the spotlight of mounting Big Pharma controversy, with Wells Fargo analyst David Maris noting in a Friday research note that Valeant has recently raised the list price on three products -- each by 9.9% -- which is a "very odd" pattern given some states and managed-care plans have been on the lookout for double-digit increases. And in defending his Underweight rating, Maris wrote that the price adjustments could also be a sign the drugmaker is having difficulty staying in line with its performance guidance for the second half of the year.
That can be especially troubling as the political season heats up, with the first presidential debates between Donald Trump and Hillary Clinton slated for next Monday. Clinton targeted Valeant in a February video ad, saying, "I'm going after them" for "predatory pricing." And the theme of cracking down on Big Pharma companies has only mounted -- most recently with outrage over Mylan (MYL) jacking prices on its EpiPen anti-allergy treatment -- and will likely be a topic of debate in coming weeks.