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VRX

Valeant

$17.33

-0.115 (-0.66%)

, TKPYY

Takeda Pharmaceutical Co. Ltd.

$21.00

0.31 (1.50%)

13:04
11/29/16
11/29
13:04
11/29/16
13:04

Deutsche says Valeant GI business sale may enhance value despite earnings hit

With Valeant Pharmaceuticals (VRX) in the midst of unloading assets to fight its potentially overwhelming debt load, Deutsche Bank argues that the rumored sale of its gastrointestinal business, Salix, could enhance value despite a potential near-term hit to earnings and growth prospects. BACKGROUND: On November 1, the Wall Street Journal reported that Valeant was in advanced negotiations to sell its gastroenterology business Salix to Takeda Pharma (TKPYY) for about $10B comprised of $8.5B in cash plus future royalties, with a deal potentially inked "in the coming weeks," according to people familiar with the matter. The sources indicated there was another, unnamed potential buyer in the mix. Later in the day, Valeant confirmed it is "currently in discussions with third parties for various divestitures including but not limited to Salix." Takeda, meanwhile, stated that "these [media] articles are not based on any announcement by Takeda. Takeda is continuously considering various options aiming to accelerate its growth focusing on prioritized therapeutic areas of gastroenterology, oncology and central nervous system plus vaccines. At any given time, Takeda is in discussion with many parties in these therapeutic areas." The following day, the Wall Street Journal again broke that Valeant was exploring a sale of its eye-surgery equipment business, which sources said could fetch as much as $2.5B, though potential bidders couldn't be immediately learned. DEUTSCHE BANK WANTS SALE AT RIGHT PRICE: Weighing on a possible sale of Salix, Deutsche Bank analyst Gregg Gilbert argues that, on the surface, divesting what could be a "growthy" and durable business is not a no-brainer. However, if Valeant can secure a high enough price to improve its debt burden, he "can see why the company would do it, particularly as maximizing the value of Salix will likely require significant additional resources and management time." The Wall Street Journal indicated a $10B price tag, and Gilbert's early analysis indicates that figure plus de-leveraging would dilute earnings by about 26%-27% in 2018-2021 but boost discounted cash flow value to $32 from $24 and allow Valeant to focus on the durable growth of Bausch + Lomb and its consumer unit. Separately, Gilbert says his U.K. colleague that covers Takeda believes the business fits the Japanese company's stated M&A priorities in terms of size and therapy area. Though the analyst hopes to hear concrete news on the matter soon "given the amount of uncertainty this speculation has created" and keeps his Hold rating on the stock, Gilbert and team "continue to like the short-term set up" in light of low 2016 expectations, generally increased transparency from the company, management confidence in successful asset sales, and Valeant's apparent willingness to sell even core assets for the right price. WELLS FARGO SAYS SALE HURTS GROWTH: Commenting on Salix in an early November research note titled "Selling The Stove To Keep The Restaurant," Wells Fargo analyst David Maris said the rumored sale is "more of an acknowledgment of significant challenges rather than a resolution," adding that Valeant's growth profile would be "significantly reduced" if Salix were sold. PRICE ACTION: Shares of Valeant have slipped 0.7% to $17.32 in afternoon trading. Over the last twelve months, Valeant shares are down roughly 80%.

VRX

Valeant

$17.33

-0.115 (-0.66%)

TKPYY

Takeda Pharmaceutical Co. Ltd.

$21.00

0.31 (1.50%)

  • 13

    Dec

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  • 16

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VRX Valeant
$17.33

-0.115 (-0.66%)

11/29/16
DBAB
11/29/16
NO CHANGE
Target $24
DBAB
Hold
Deutsche weighs impact on Valeant should Salix be sold
Deutsche Bank analyst Gregg Gilbert hopes to hear closure soon on a potential sale of Salix by Valeant Pharmaceuticals. While a sale is not a "no-brainer" given the unit's growth and durability, a deal could improve Valeant's debt situation and add to its value, Gilbert tells investors in a research note. His preliminary analysis suggests that a sale of Salix for $10B coupled with de-levering would be "significantly" dilutive to earnings but accretive to Valeant's value. His analysis yields earnings dilution of 26%-27% in 2018- 2021 and an increase in the company's theoretical discounted cash flow value to $32 from $24. Gilbert continues to like the near-term setup in shares of Valeant but keeps a Hold rating on the shares with a $24 price target. The pharmaceutical closed yesterday up 44c to $17.44.
11/23/16
MZHO
11/23/16
DOWNGRADE
Target $11
MZHO
Underperform
Valeant downgraded to Underperform from Neutral at Mizuho
Mizuho analyst Irina Koffler downgraded Valeant Pharmaceuticals to Underperform, her firm's sell rating equivalent, and cut her price target for the shares to $11 from $25. The drugmaker closed yesterday at $17.83. Koffler believes growth challenges, 2017 guidance risk, legal overhangs and weaker asset divestitures create an unfavorable risk/reward profile. She expects the shares to trend lower over the next 6-12 months.
11/18/16
ADAM
11/18/16
NO CHANGE
Target $17
ADAM
Hold
Valeant negative headlines remain a risk, says Canaccord
Canaccord analyst Neil Maruoka noted yesterday's headlines regarding criminal charges against a former Valeant executive. He said although the charges are not pertinent to Valeant it underscores the negative headline risk that is associated with owning the shares. Maruoka said the company's lower guidance suggests growth headwinds into next year and believes the company still needs to sell assets to de-lever. Maruoka maintained his Hold rating and $17 price target on Valeant shares.
11/18/16
DBAB
11/18/16
NO CHANGE
Target $24
DBAB
Hold
Deutsche still likes near-term setup for Valeant shares
Deutsche Bank analyst Gregg Gilbert said yesterday that he still likes the near-term setup for shares of Valeant Pharmaceuticals after federal prosecutors announced criminal charges against former executive Gary Tanner and the former CEO of Philidor. It is "good to see" that Valeant and other senior executives were not charged, Gilbert told investors in a research note. The charges could be an important step forward as the company and new management team distance themselves from the past, Gilbert wrote. The analyst points out that the bar for 2016 has already been lowered and that new CFO Paul Herendeen thinks of guidance as a commitment. Gilbert keeps a Hold rating on Valeant with a $24 price target. The stock closed yesterday up 12c to $17.98.
TKPYY Takeda Pharmaceutical Co. Ltd.
$21.00

0.31 (1.50%)

09/15/16
WELS
09/15/16
NO CHANGE
WELS
Street underestimating potential of PRA Health deal, says Wells Fargo
Wells Fargo believes that the Street is underestimating the potential benefit to PRA Health (PRAH) of its deal with Takeda (TKPYY). The firm expects PRA's bookings over the next year to significantly exceed the industry average, causing 2017 and 2018 consensus estimates for the company to rise. Wells raised its price target on PRA to $65-$67 from $56-$59 and keeps an Outperform rating on the shares.
09/14/16
SBSH
09/14/16
NO CHANGE
Target $4
SBSH
Neutral
Citi views Synergy Pharmaceuticals as potential target for Takeda
Citi analyst Liav Abraham calls Synergy Pharmaceuticals (SGYP) the most likely potential target for Takeda Pharmaceutical (TKPYY) among her coverage universe. The Financial Times earlier today reported that Takeda is ready to spend as much as $15B in acquisitions to expand its business in the United States. Abraham has a Neutral rating on Synergy with a $4 price target. The analyst sees Synergy as a potential target given the "extensive resources" needed to commercialize its lead asset, plecanatide, as well as Takdea's presence in the irritable bowel syndrome/chronic idiopathic constipation space. Shares of Synergy are up 6% to $5.18 in early trading.
07/07/16
UBSW
07/07/16
INITIATION
UBSW
Neutral
Takeda Pharmaceutical initiated with a Neutral at UBS
UBS analyst Atsushi Seki started Takeda with a Neutral rating and Y4,600 price target.
06/08/16
RHCO
06/08/16
NO CHANGE
RHCO
Ultragenyx collaboration with Takeda 'exceptionally positive,' says SunTrust
After Ultragenyx (RARE) announced a development and commercialization collaboration for rare genetic diseases with Takeda (TKPYY), SunTrust says the deal terms are "exceptionally positive" for Ultragenyx. The firm notes that the latter company will receive both compounds and cash payments from Takeda, while Takeda will only get comemrcial rights in Asia. The firm keeps a Buy rating on Ultragenyx.

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