Valeant Stock Could Benefit from Trump Presidency
Valeant Pharmaceuticals Intl Inc (TSE:VRX) has made huge losses and huge gains in the span of 24 hours. Valeant stock lost 22% on election day and gained back almost eight percent the day after. What happened? Donald Trump won. A Donald Trump presidency should be better for pharmaceutical companies that a Hillary Clinton one.
The Valeant stock rebound shows that pharma and biotech investors see Trump’s win as bullish for these sectors. Trump ran on a platform of repealing Obamacare. He wants to replace this by giving Medicare (the traditional U.S. government health insurance for over 65 years) to negotiate drug prices with the pharma industry directly. While, the repealing Obamacare could benefit the pharma sector, it might be more complicated to achieve direct price negotiations.
Regardless, Trump is better for Valeant stock. Hillary Clinton said she was going to go after the sector, regulating (and reducing) drug prices. As people who need anything from a basic headache pill to a more complex prescription know, drug prices have soared in recent years. A Trump presidency is expected to maintain the ‘soaring’ trend. It’s bad for most people, but it’s bullish for the pharma industry.
Valeant stock’s big loss this week wasn’t just a case of the Clinton blues. Even if the patient has recovered well, Valeant’s heavy loss of over a billion dollars in the last quarter helped bring down Valeant stock. But, aside from the Trump win, the silver lining is that Valeant’s loss came largely from an asset impairment charge for Salix Pharmaceuticals in the amount of $1.05 billion.
Valeant also lowered its forecast for the year. The pharmaceutical company now expects adjusted earnings per share in the range of US$5.30 to US$5.50 per share, compared with the prior range of US$6.60 to US$7.00 per share.
However, the bullish prospects come from the fact that Valeant plans to sell off assets, of which it has many. Some of them quite desirable. Valeant stock carries some $30.0 billion in debt and its new CEO, Joseph Papa, who came in to fix the company, said he would focus on profitability, doing whatever is needed to achieve it. The Trump election should have helped quell fears of regulatory pressures.