The shares of Valeant Pharmaceuticals (VRX) are falling after Wells Fargo initiated coverage of the stock with an Underperform rating, the firm's equivalent of a "Sell." Valeant's strategy is risky and there are many unanswered questions remaining about the company, the firm stated.
UNANSWERED QUESTIONS: Valeant has made decisions that may pose significant risks to the company's business and reputation, according to Wells Fargo analyst David Maris. The company has embraced a business model that incorporates practices, such as cutting the costs of acquired companies and raising drug prices, that are under "intense scrutiny", the analyst believes. As a result, Valeant's growth could be stunted, he warned. Additionally, even after meeting with Valeant's management, Maris says he has many unanswered questions about Valeant in a variety of areas, including its "investment considerations, strategic direction, recent guidance, and the mechanics of [its] Walgreen's (WBA) - Get Report deal." Valeant has not explained how the unwinding of Philidor, which represented 6.8% of revenue, results in a 36.6% reduction in earnings, said Maris, who recommended that investors avoid the stock. He set a $65-$68 price target range on the shares.
FOCUS OUTPERFORM CALLS: Maris is much more upbeat about the outlook for two other pharma names, Teva (TEVA) - Get Report and Amphastar (AMPH) - Get Report . The analyst resumed coverage of Teva with an Outperform rating, saying that its pipeline includes two potential blockbusters - SD-809 and TEV-48125 -which are underappreciated, while its generic portfolio is "best in class." Moreover, its profits should come in above expectations going forward, believes Maris, who set a $68-$71 price target range on the shares. The analyst initiated coverage of Amphastar with an Outperform rating, saying that the company has the potential to become "one of the fastest-growing generic drug and specialty pharmaceutical companies within the next 3-5 years driven by the strength of its pipeline." He set a $20-$22 price target range on the shares.
WHAT'S NOTABLE: Maris also resumed coverage of Jazz Pharmaceuticals (JAZZ) - Get Report with an Outperform rating and Mylan (MYL) - Get Report with a Market Perform rating. He additionally initiated coverage of Allergan (AGN) - Get Report , Perrigo (PRGO) - Get Report , Mallinckrodt (MNK) - Get Report , Emergent BioSolutions (EBS) - Get Report and Neos Therapeutics (NEOS) - Get Report , all with Outperform ratings.
PRICE ACTION: In morning trading, Valeant sunk 6.2% to $88.30, while Teva lost 0.5% to $56.77 and Amphastar was flat near $11.20 per share.
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