Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock, the once-high-flying Wall Street favorite, suffered not just one, but several major blows that knocked the company down to its knees.
The Canadian pharmaceutical company struggled and lost more than 87% in stock value over the past year. VRX stock went down from its highest trading price of $217.07 per share to as low as $18.55 per share over the past 52 weeks.
VRX stock closed $27.72 per share, up 3.24% on the New York Stock Exchange (NYSE) on September 23. Over the past three months, VRX stock gained more than 36% from its closing price of $20.27 per share on June 24.
Investors are wondering if VRX stock finally reached the bottom and is on its way up. Will Valeant eventually recover from its problems?
Challenges Confronting Valeant Stock
Democratic presidential candidate Hillary Clinton threw the first punch against specialty pharmaceutical companies, including Valeant and Turing Pharmaceuticals, on September 21, 2015. In a tweet, she vowed to take down the “outrageous price gouging” in the specialty drug market. Her statement sent share prices of biotech companies down, including Valeant stock. (Source: “Clinton’s Tweet on High Drug Prices Sends Biotech Stocks Down,” Bloomberg, September 21, 2015.)
Valeant was among the companies called to testify in a series of congressional hearings on the sudden and significant price hikes in prescription drugs. (Source: “Valeant Pharmaceuticals’ Business Model: The Repercussions for Patients and the Health Care Systems,” U.S. Senate Special Committee on Aging, April 27, 2016.)
The company attracted the attention of lawmakers because of its massive price hikes for “Nitropress,” a blood-pressure drug (536% price increase), and Isuprel, a heart-rhythm treatment (236% price increase), as well as price hikes for 54 other medicines. (Source: “Valeant’s price-hike strategy goes far beyond two high-profile increases,” FiercePharma, October 5, 2015.)
The second jab came from Citron Research, which accused Valeant of using pharmacies such as Philidor RX Services, LLC to create fraudulent sales and inflate its growth rate. The short-selling research firm also suggested that Valeant stock could be the Enron of the pharmaceutical industry. (Source: “Valeant: Could this be the Pharmaceutical Enron?” Citron Research, October 21, 2015.)
Valeant stock received another blow after Express Scripts Holding Company (NASDAQ:ESRX) and CVS Health Corp (NYSE:CVS) decided to terminate their relationships with Philidor RX, which had a special and questionable relationship with Valeant.
Several institutional investors, including TIAA-CREF, CalPERS, and T. Rowe Price Group Inc (NASDAQ:TROW) filed securities fraud lawsuits against Valeant. (Source: “T. Rowe Price sues Valeant over ‘fraudulent scheme’,” Reuters, August 18, 2016.)
The U.S. Securities and Exchange Commission (SEC), the U.S. Attorney’s Office for Massachusetts, and the U.S. Attorney’s Office for the Southern District of New York also launched investigations into the Canadian pharma company. Another problem confronting Valeant stock is the company’s humongous debt of $30.8 billion by the end of the second quarter.
A New Direction for a New Valeant Stock
Valeant’s Chair and CEO Joseph Papa said the company is committed to creating a new Valeant with a vision to be a trusted healthcare partner and a mission to improve people’s lives with its products.
The company is now moving in a new direction and is focused on achieving its latest strategic imperatives: specialty-driven and above-average growth market (dermatology, gastrointestinal (GI), and eye care), building a leadership position and pipeline, driving efficient resource allocation, and building durable brands in key geographies.
Valeant also changed its management team and structures and has established new business segments. The company aims to stabilize itself within three to six months by paying down its debt, attracting new talents, recruiting employees, fixing its dermatology portfolio, and accelerating the growth of Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) portfolio.
The company is committed to paying at least $1.7 billion of its permanent debt this year. It is currently exploring strategic alternatives for some of its non-core businesses that represent a transaction value of $8.0 billion. Valeant stock received indications of interests on those assets and has engaged the services of banks and advisors to help the company in exploring its options.
The company aims to turn itself around within two years and realize its transformation by 2018. The new Valeant is expected to lead in dermatology, GI, and eye care; launch new products, and achieve a balance and inorganic growth.
Valeant’s management expects the new Valeant to achieve a revenue growth of around six percent to eight percent and earnings before interest, taxes, depreciation, and amortization (EBITDA) growth between eight percent and 12% in 2017 and 2018. For the full fiscal 2016, the company reaffirmed its target to deliver revenue of $9.9 billion to $10.1 billion, adjusted earnings of around $6.00 to $7.00 per share, and adjusted EBITDA of around $4.8 billion to $4.95 billion. (Source: “Valeant Pharmaceuticals Reports Second Quarter 2016 Financial Results,” Valeant Pharmaceuticals Intl Inc, August 9, 2016.)
One of the keys to the success of the new Valeant is its product pipeline. The company reported in the second quarter that aside from “Xifaxan,” its three other primary GI products, including “Uceris,” “Relistor,” and “Apriso,” are growing in the mid to high single-digit range.
The U.S. Food and Drug Administration (FDA) recently approved Relistor tablets (450 mg once daily) for the treatment of opioid-induced constipation (OIC) in adults with chronic non-cancer pain. The medicines are now available for prescribing in the United States. The FDA’s advisory committee also recommended that approval of “Brodalumab” injection (210 mg) for adult patients with moderate to severe plaque psoriasis with conditions related to product labeling and post-marketing/risk management obligations.
Last month, Valeant relaunched its generic “ofloxacin otic” solution to treat bacterial ear infections. The treatment is available in most of the major retailers in the United States. The company also signed a licensing agreement with Norgine B.V. and obtained the rights to develop and commercialize “NER1006” powder for the cleansing of the colon for colonoscopies. (Source: “Valeant Pharmaceuticals Announces Licensing Agreement With Norgine B.V. For NER1006 In U.S. And Canada,” Valeant Pharmaceuticals Intl Inc, August 8, 2016.)
The Bottom Line for VRX stock
Valeant Pharmaceuticals is doing its best to resolve its problems. However, it would take a few years to regain its reputation and generate compelling growth and profitability. VRX stock is expected to continue to face volatility. If management succeeds in its turnaround efforts, the stock will eventually trade higher.
Take note that Valeant’s top three institutional shareholders include Pershing Square Capital Management, L.P., Paulson & Co. Inc., and ValueAct Capital. These investment management firms are headed by prominent activist investors: Bill Ackman, John Paulson, and Jeffrey Ubben.
A majority of Wall Street analysts (10 of them) covering VRX stock are advising investors to hold their stake in the company. Analysts at Rodman & Renshaw were the most bullish on Valeant stock and haveforecasted that it could surge as much as $81.00 per share over the next 12 months. Analysts at Guggenheim and Stifel Nicolaus had a $55.00 price target on the stock.