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Valeant ‘in wind-down mode’; avoid: Mizuho

March 8, 2017

Mizuho Securities analyst Irina Koffler views Valeant Pharmaceuticals (NYSE: VRX) as in “wind-down mode” and is telling clients to continue to avoid the stock. She reiterated an Underperform rating and price target of $9.

Koffler commented, “We expect revenue will continue to decline and model a wind-down in OpEx as the company divests assets and focuses on debt repayment. We think management will continue to guide down 2017 as assets are sold off and interest expense rises. Reasons we remain negative include: 1) In its 10-K filing Valeant notes that it stands to lose ~19% of its 2016 revs to generic competition in the 2017-2021 period. 2) Valeant faces worsening gross-to-net discounts (41% in 2016, up from 34% in 2015), and can’t make it up on price, in our view. 3) The pipeline may be insufficient to fill in the gaps, (e.g., management guided to an anemic $100M in 2017 contribution from new launches) and management keeps changing its growth drivers in investor presentations, moving from Xifaxan in HE in 2016, to Siliq in psoriasis in 2017, which feels unrealistic to us yet again. We reiterate our Underperform rating and $9 PT. We had to lower longer term investment in the business to keep valuation at this level.”

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