Valeant Ditches Philidor: Here's What It Really Means

• Valeant Pharmaceuticals Intl Inc VRX has announced it is cutting ties with Philidor RX Services.
• Valeant’s stock is down more than 45 percent on the news.
• Analysts are downplaying the impact that the decision will ultimately have on Valeant.

Valeant shares are down 4.5 percent in early trading on Friday following an announcement that it will sever ties with controversial mail-order pharmacy Philidor RX Services, LLC. Here’s a look at what four Wall Street firms have to say about the impact the move will have on Valeant shareholders.

Bank of America
Analyst Sumant Kulkami believes the financial impact of the decision will be minimal for Valeant and predicts that “VRX’s diverse business mix, durable asset base, and low product concentration risk position VRX to generate solid cash flow and de-lever to its goal of below 4x adj. EBITDA by the end of 2016." The firm maintains its Buy rating and $173 price objective.

J.P.Morgan
Analyst Chris Schott believes that the decision for Valeant to drop Philidor will be "ultimately well-received by the market.” He notes that Philidor represents about 7.0 percent of Valeant’s revenue, but expects that Valeant will quickly fill some of Philidor’s void by adding another independent specialty pharmacy. J.P.Morgan maintains its Overweight rating on Valeant.

Stifel
Analyst Annabel Samimy bluntly explains that Valeant’s “Philidor relationship is just not that important,” adding that Valeant has only “modest” revenue exposure to the controversial pharmacy. Stifel maintains its Buy rating and $285 target for Valeant.

Morgan Stanley
Analyst David Risinger believes that the largest impact on Valeant will not be on revenue, but rather on growth. “Philidor and related specialty pharmacies accounted for only 7.2% of global revenue; we estimate Philidor contributed over a third of reported 27% US organic growth,” he explains. Morgan Stanley mantains an Equal-Weight rating on Valeant.

Disclosure: the author holds no position in the stocks mentioned.