Pharma Giant Valeant has been Brought Down
– Momentum Public Relations –
Shareholders in Valeant Pharmaceuticals (VRX) have undoubtedly had a rough year. Unfortunately, the struggling drug maker shows no signs of improvement. After losing nearly half the stock’s value in the last week, the company’s downward spiral continues.
By the close of the day on March 14, Valeant was valued at $23.6 billion. This is a dramatic drop from its value of $89.6 billion during its peak trading price in mid-August. March 15 share prices closed at $40.20, the same level as March 15, 2011. Shares had been consistently above $50 since 2012, with a high of $263.70 in August 2015.
Valeant’s biggest shareholders are feeling the pain of the company’s struggles. Pershing Square is left with about $800 million in losses from this week alone. ValueAct is down roughly $390 million.
Several factors are affecting Valeant’s stock price.
• Excessive Debt: The company is heavily in debt due a lengthy acquisitions binge, carrying over $30 billion in net debt and levered with a debt-to-equity ratio of nearly 5-to-1. They’re also at risk of defaulting on certain debts, due to a failure to file their 10-K for 2015 within the 15-day extension window required by regulators.
• Weak Growth: Multiple analysts believe Valeant’s emphasis on serial acquisitions has been camouflaging week growth. Unaudited fourth-quarter earnings were well below expectations and several drugs in the company’s portfolio aren’t living up to the company’s promises to investors. For example, a drug that claims to boost a woman’s libido, Addyi, is unlikely to hit the sales of $100 million to $115 million that the company had previously stated. Lower growth across the board is expected in Valeant’s US dermatology, gastrointestinal, and women’s health portfolios.
• Legal Trouble: Valeant’s pricing strategies have been widely criticized, leading to investigations from the US Attorney’s Office for the District of Massachusetts, the US Attorney for the Southern District of New York, and the US House Oversight Committee. Valeant is under investigation by the SEC in regards to its previous relationship with drug distributor Philidor Rx Services LLC. The Federal Trade Commission is investigating the company’s growing control of the production of rigid gas permeable contact lenses following the acquisition of Paragon Vision Service and a series of unilateral price increases in 2015.
• Employee Retention: Valeant paid out employee bonuses last week, but insiders say employee retention is a concern. The company is an exceptionally challenging place to work for, but savvy investors know Valeant can’t recover without a team of capable leaders.
Also adding to the company’s troubles was the lengthy absence of CEO Mike Pearson, who was on medical leave from last December to the first of March due to a severe case of pneumonia. Howard B. Schiller served as Valeant’s interim chief executive officer, but having the company’s leader missing in action during a time of crisis shook investor confidence. Troubles were compounded when the company was less than forthcoming about the seriousness of Pearson’s condition.
There have been rumors circulating that Valeant’s board has considered firing Pearson, but decided to keep him on to avoid paying out a $200 million severance package. Pearson insists that’s not the case, stating he’d only be entitled to a modest payment for vested stock if the board decided to replace him.
Since his return, Pearson has pledged to focus on “improving Valeant’s reporting procedures, internal controls and transparency.” However, it remains to be seen if Pearson is a strong enough leader to save Valeant from the brink of destruction.
Based in Laval, Quebec, Valeant’s subsidiaries include Bausch & Lomb, Salix Pharmaceuticals, Medicis Pharmaceutical, Solta Medical, Dendreon, OraPharma, and Obagi. Before last year’s regulatory troubles began, the company was considered to be the poster-child for the lucrative model of high-profile takeovers in the pharmaceutical industry.