Valeant's Drug Approvals May Save the Day
Editor's Note: This article was originally published on Real Money at 9:21 a.m. on July 20.
As debt-laden Valeant Pharmaceuticals (VRX) looks for new ways to shore up cash, a trio of pipeline drugs may be coming to the rescue.
Shares of the Canadian drugmaker were up nearly 5% in morning trading Wednesday after the FDA on Tuesday gave approval to one of the drugs, opiod-induced constipation treatment Oral Relistor, hours after an FDA advisory board voted 18-0 to approve a second drug, psoriasis treatment Brodalumab (on the condition that Valeant establishes safety regimens and warning labels due to risks that Brodalumab may cause suicidal thinking among patients).
Together with glaucoma treatment Latanoprostene bunod, which is under FDA review and slated for approval this month, Valeant could rake in as much as $2 billion annually in much-needed sales -- and at fat margins, thanks to overlaps with the company's other businesses -- Rodman & Renshaw managing director Raghuram Selvaraju said in a phone interview with Real Money.
Rodman & Renshaw, a unit of H.C. Wainwright, reiterated its buy rating on Valeant and $90 price target Wednesday (the highest of Valeant's listed analysts), noting in a report that Brodalumab and Oral Relistor passed the FDA's review with "flying colors."
And Oral Relistor, the oral formulation of a drug Valeant obtained in its $14.5 billion purchase of Salix in 2015, could provide substantial profits by integrating sales and marketing costs of the drug with Valeant's ongoing Salix operations, Selvaraju added.
"From our perspective, an oral formulation could allow the product to attain blockbuster (greater than $1 billion) status in annual sales," he said.
Selvaraju told Real Money that Brodalumab appears to be the drug most challenged by FDA review, and that all three are likely to each pull in more than $500 million in new annual sales, with results expected to hit the bottom line as soon as the fourth quarter.
And that's largely because there are now significant business overlaps available with Valeant's current products. Valeant went on a debt-fueled acquisition spree over the past few years, which is also to blame for the company's roughly $31 billion debt stack and high leverage.
For example, Valeant's glaucoma treatment Latanoprostene bunod would fit well into its Bausch & Lomb businesses, just as Relistor Oral and Brodalumab would integrate with marketing teams at Valeant's Salix and dermatology businesses, respectively.
TD Securities analyst Lennox Gibbs said in a Wednesday report that the Brodalumab is a "high-stakes" proposition in Valeant's pipeline, largely because many analysts have not yet incorporated its potential sales and earnings benefits into Valeant's performance outlook.
"We view yesterday's outcome as a vindicating win for the company," Gibbs said, noting there was "broad consensus" among the FDA that Brodalumab showed significant benefits over the test's placebo, as well as over Johnson & Johnson's (JNJ) - Get Report Stelara drug.
TD Securities maintains a hold rating on Valeant and $38 price target.