Take a pass on Valeant Pharma, Canaccord Genuity says

Competition from generic drugmakers will affect Valeant Pharmaceuticals’ (Valeant Pharma Stock Quote, Chart, News: TSX:VRX, NYSE:VRX) revenue in 2018, says analyst Neil Maruoka of Canaccord Genuity, who maintains his “Hold” rating on the stock while increasing his target price to $18.00 USD.

VRX had a great run in 2017, ending the year on a 43 per cent uptick and giving signals that the drug company was making positive strides towards a turnaround. Ahead of Valeant’s Q4 results due this Wednesday, Maruoka likes a number of moves the company has made, including paying down roughly $2 billion in debt over the past few months — thereby eliminating an estimated $120 million in annual interest expenses — and maintaining steady growth from its core franchises.

Nonetheless, Maruoka is cautious about Valeant Pharma in 2018, noting that a loss of exclusivity on some of its products will mean stiffer competition from generics, enough to impact Valeant’s topline.

“With the threat of generic competition, we have made modest adjustments to our 2018 forecasts ahead of the print, lowering our revenue estimate from $8.67 billion to $8.43 billion and adjusted EBITDA from $3.60 billion to $3.46 billion,” says the analyst in a note to clients on Monday.

“While the company has continued to drive steady growth from core franchises, we will look for durable growth from Xifaxan, SILIQ, and Vyzulta going forward. Prescription trends for SILIQ have shown stronger momentum lately, but we note this product launch is unlikely to have a meaningful impact on the quarter or the year,” says Maruoka.

The analyst has raised his projection for VRX’s 2017 earnings per share from $3.70 USD to $3.75 along with a raised fiscal 2018E to $3.78.

Maruoka maintains his “Hold” rating for VRX with a target price raise from $16.00 US to $18.00, representing a 3.6 per cent annualized return at the time of publication.