Shares of Valeant Pharmaceuticals International, Inc. hit a 52-week low of $10.08 on Apr 4.
What is Hurting Valeant Pharmaceuticals?
Valeant relies heavily on acquisitions for growth, thereby focusing less on organic growth.
Valeant’s share price shows that the company has underperformed the Zacks classified Medical Drugs industry year to date. The stock declined 30% compared with industry’s gain of 1.6%.
Valeant has been the subject of a pricing controversy over the last few months, with politicians and media focusing on the high price of drugs. T. Rowe Price Group Inc. had filed a lawsuit against Valeant over fraudulent scheme alleging that the latter had used a secret pharmacy network, deceptive pricing and reimbursement practices, and fictitious accounting. The lawsuit could well indicate further discrepancies on part of Valeant. With the President Donald Trump’s focus on drug pricing, Valeant will continue to be in the spotlight for pricing of drugs.
Valeant is seeking to refinance and amend the company's existing credit agreement (the "Credit Agreement"), borrow new Term B loans under the Credit Agreement and issue new secured debt securities. In Mar 2017, Valeant successfully closed the skincare products asset sale and used the net proceeds of the sale to pay down approximately $1.1 billion of its senior secured term loans.
Further, the company also closed its previously announced refinancing transactions. These transactions include offering of $1.25 billion aggregate principal amount of 6.50% senior secured notes due 2022 and $2.0 billion aggregate principal amount of 7.00% senior secured notes due 2024, and borrowing of an additional approximately $3 billion of new-term loans maturing in 2022. The company used the proceeds of the offering and the new term loan together with cash on hand to repay all term loans under its credit facility maturing in 2018, 2019 and 2020, $350 million of revolver borrowings and $1.1 billion of its 6.75% Senior Notes due 2018. The company took these steps in order to focus on driving the fundamental operating performance of its various businesses. However, the refinancing raised serious doubts about the company’s ability to service such huge levels of debt and further adds to its existing woes.
Meanwhile, the company is planning to divest 10 businesses for total gross proceeds of up to $2.7 billion and pay down its huge levels of debt.
Moreover, generic competition for key drugs will continue to impact results. The company is facing generic competition for its neurology products. Integration risks pose a great challenge to the company.
Further, in Mar 2017, in a letter addressed to shareholders, Bill Ackman, chairman of Perishing Square Holdings, Ltd stated that investing in Valeant was a big mistake on his part. The chairman stated that firm’s stake in Valeant was the primary driver of negative performance in 2016. The firm’s stake in Valeant resulted in a return of -19.2% in 2016. Due to a substantial decline in Valeant’s share price in the first quarter of 2016, Bill Ackman and Steve Fraidin joined the board in Mar 2016 as part of Pershing Square’s effort to stabilize the company. Thereafter, the Chief Executive Officer (CEO) of the company was replaced and Joseph C. Papa became the new CEO.
The new management took various efforts to turnaround the company but in vain. Despite significant operational progresses, share price performance continues to disappoint. As a result, earlier in Mar 2017 the firm sold its remaining stake in Valeant.
The dermatology business has been affected by lower script volume, lower fill rates, lower ASPs and overall higher managed care rebates. These issues are expected to plague the dermatology franchise in the coming quarters.
Valeant had faced significant challenges while integrating its Medicis acquisition. The Medicis business was weak in 2013 due to sales force disruption from integration and significant channel inventories. We remain concerned about the organic growth aspect of the company as it might not be able to realize the targeted synergies from the acquisitions, thereby impacting both the top and bottom lines.
Zacks Rank & Stocks to Consider
Valeant currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the health care sector include Heska Corporation , Retrophin, Inc. and Galena Biopharma, Inc. . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Heska’s earnings estimates moved up from $1.53 to $1.65 for 2017 and from $1.80 to $2.01 for 2018, over the last 30 days. The company posted an outstanding positive earnings surprise in the last four quarters, with an average beat of 291.54%. Its share price increased 47.9% year to date.
Retrophin’s loss estimates narrowed from 85 cents to 72 cents for 2017 and from 67 cents to 53 cents for 2018, over the last 30 days. The company posted a positive earnings surprise in three of the four trailing quarters, with an average beat of 80.55%.
Galena Biopharma‘s loss estimates narrowed from $2.53 to 58 cents for 2017 and from $1.95 to 73 cents for 2018, over the last 60 days. The company posted a positive earnings surprise in two of the four trailing quarters, with an average beat of 53.83%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time? Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>
Image: Bigstock
Valeant (VRX) Faces Pricing Issues, Generic Threats Loom
Shares of Valeant Pharmaceuticals International, Inc. hit a 52-week low of $10.08 on Apr 4.
What is Hurting Valeant Pharmaceuticals?
Valeant relies heavily on acquisitions for growth, thereby focusing less on organic growth.
Valeant’s share price shows that the company has underperformed the Zacks classified Medical Drugs industry year to date. The stock declined 30% compared with industry’s gain of 1.6%.
Valeant has been the subject of a pricing controversy over the last few months, with politicians and media focusing on the high price of drugs. T. Rowe Price Group Inc. had filed a lawsuit against Valeant over fraudulent scheme alleging that the latter had used a secret pharmacy network, deceptive pricing and reimbursement practices, and fictitious accounting. The lawsuit could well indicate further discrepancies on part of Valeant. With the President Donald Trump’s focus on drug pricing, Valeant will continue to be in the spotlight for pricing of drugs.
Valeant is seeking to refinance and amend the company's existing credit agreement (the "Credit Agreement"), borrow new Term B loans under the Credit Agreement and issue new secured debt securities. In Mar 2017, Valeant successfully closed the skincare products asset sale and used the net proceeds of the sale to pay down approximately $1.1 billion of its senior secured term loans.
Further, the company also closed its previously announced refinancing transactions. These transactions include offering of $1.25 billion aggregate principal amount of 6.50% senior secured notes due 2022 and $2.0 billion aggregate principal amount of 7.00% senior secured notes due 2024, and borrowing of an additional approximately $3 billion of new-term loans maturing in 2022. The company used the proceeds of the offering and the new term loan together with cash on hand to repay all term loans under its credit facility maturing in 2018, 2019 and 2020, $350 million of revolver borrowings and $1.1 billion of its 6.75% Senior Notes due 2018. The company took these steps in order to focus on driving the fundamental operating performance of its various businesses. However, the refinancing raised serious doubts about the company’s ability to service such huge levels of debt and further adds to its existing woes.
Meanwhile, the company is planning to divest 10 businesses for total gross proceeds of up to $2.7 billion and pay down its huge levels of debt.
Moreover, generic competition for key drugs will continue to impact results. The company is facing generic competition for its neurology products. Integration risks pose a great challenge to the company.
Further, in Mar 2017, in a letter addressed to shareholders, Bill Ackman, chairman of Perishing Square Holdings, Ltd stated that investing in Valeant was a big mistake on his part. The chairman stated that firm’s stake in Valeant was the primary driver of negative performance in 2016. The firm’s stake in Valeant resulted in a return of -19.2% in 2016. Due to a substantial decline in Valeant’s share price in the first quarter of 2016, Bill Ackman and Steve Fraidin joined the board in Mar 2016 as part of Pershing Square’s effort to stabilize the company. Thereafter, the Chief Executive Officer (CEO) of the company was replaced and Joseph C. Papa became the new CEO.
The new management took various efforts to turnaround the company but in vain. Despite significant operational progresses, share price performance continues to disappoint. As a result, earlier in Mar 2017 the firm sold its remaining stake in Valeant.
The dermatology business has been affected by lower script volume, lower fill rates, lower ASPs and overall higher managed care rebates. These issues are expected to plague the dermatology franchise in the coming quarters.
Valeant had faced significant challenges while integrating its Medicis acquisition. The Medicis business was weak in 2013 due to sales force disruption from integration and significant channel inventories. We remain concerned about the organic growth aspect of the company as it might not be able to realize the targeted synergies from the acquisitions, thereby impacting both the top and bottom lines.
Valeant Pharmaceuticals International, Inc. Price and Consensus
Valeant Pharmaceuticals International, Inc. Price and Consensus | Valeant Pharmaceuticals International, Inc. Quote
Zacks Rank & Stocks to Consider
Valeant currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the health care sector include Heska Corporation , Retrophin, Inc. and Galena Biopharma, Inc. . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Heska’s earnings estimates moved up from $1.53 to $1.65 for 2017 and from $1.80 to $2.01 for 2018, over the last 30 days. The company posted an outstanding positive earnings surprise in the last four quarters, with an average beat of 291.54%. Its share price increased 47.9% year to date.
Retrophin’s loss estimates narrowed from 85 cents to 72 cents for 2017 and from 67 cents to 53 cents for 2018, over the last 30 days. The company posted a positive earnings surprise in three of the four trailing quarters, with an average beat of 80.55%.
Galena Biopharma‘s loss estimates narrowed from $2.53 to 58 cents for 2017 and from $1.95 to 73 cents for 2018, over the last 60 days. The company posted a positive earnings surprise in two of the four trailing quarters, with an average beat of 53.83%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time? Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>