By Poroma Pant
Shares of Valeant Pharmaceuticals International Inc. went into freefall Tuesday after the embattled pharmaceutical company warned its investors of sharply curtailed earnings expectations and disclosed that it’s in danger of defaulting on some of its debt.
In a conference call, analysts grilled Chief Executive Officer Mike Pearson with questions regarding his leadership at the once highflying company.
“How can we be confident in what you’re saying about the business, given you were positive in December, and January?” said Shibani Malhotra, an analyst with Nomura Securities who had late last year listed the stock with a buy rating and a $175 price target. “How do we get comfortable that Valeant is able to execute and deliver for shareholders?”
Valeant Inc. share prices 2014-2016
In high-volume New York Stock Exchange trading, Valeant shares lost just over half their value, dropping $35.53, or 51 percent to close at $33.51, the lowest intraday price in almost five years. That plunge erased more than $10 billion in the company’s market value. With Tuesday’s swoon, Valeant shares have lost 87 percent of their value since peaking at $262.5 in August 2015.
Over the last six months, the financially stressed company has been pummeled in a series of controversies. Among others things, the Securities and Exchange Commission has launched an investigation, because of questions around the company’s accounting practices.
The SEC review also includes the company’s pricing and distribution practices; Valeant drew outraged headlines last year after it acquired the niche cardio drugs Isuprel and Nitropress, and sharply hiked their costs by over 500 and 200 percent respectively. The company has subsequently said it will phase out that strategy in coming years.
After the company decided to pull the past two years of its reported earnings as possibly inaccurate, Valeant recently set up an ad hoc committee to review previous financial statements earlier this year.
Tuesday’s turbulence came on a day when the company reported year-end results. Valeant reported revenue of $2.78 billion and a net loss of $336.4 million, or 98 cents per share in its fourth quarter. The company did not provide full-year and previous year results as they are currently under review. Valeant also said it has delayed filing its 10-K annual report because of the accounting issues, and said if it isn’t able to file by March 30 it would be in default on certain obligations.
“The challenges of the past few months are not yet behind us, and our goal for 2016 is to better balance our priorities across all of our constituencies — physicians, patients, employees, payors, debt holders and shareholders, said Pearson, the CEO. “Our business is not operating on all cylinders, but we and I are working to get it back on track.”
Investors chose to focus instead on a profit warning the company issued: Valeant now expects first quarter 2016 revenue of $11 billion to $11.2 billion – down from previous guidance of $12.5 billion and $12.7 billion. The company also adjusted its EPS guidance downward by a hefty 4 dollars, to $9.50 -$10.50 a share from an earlier forecast of $13.25 – $13.75.
Valeant’s stock decline accelerated late last year after a scandal tainted its acquisition of specialty pharmacy concern known as Philidor Rx Services LLC. After the purchase, a number of legal allegations including questionable sales practices against the now defunct specialty pharmacy surfaced, and Valeant severed ties with Philidor.
“Recent concerns over the company’s aggressive use of specialty pharmacies and price increases had tarnished the company’s image, the company’s questionable relationship with Philidor, has raised concerns over wrongdoing and weak internal control” wrote Michael Waterhouse, Morningstar Inc. analyst in an online report toward the end of 2015.
Later last year, Valeant signed a deal with Walgreens to take over the distribution which had been flowing to Philador. “Over 90 percent of the physicians who were using Philidor are now using Walgreens,” Pearson said in a statement. However, in an attempt to implement changes, Valeant cut its prices by 10 percent which resulted in lower profit margins.
“We partially anticipated the ongoing inventory transition from Philidor to Walgreen’s depressed results, but we were surprised to see weaker than anticipated results in some of Valeant’s high-growth and margin segments,” said Waterhouse Tuesday in an online note.
Raising the possibility that Valeant could yet weather its current crisis, Waterhouse added that the company’s disappointing outlook is a worrying sign, and “We continue to caution investors that near term volatility is likely to remain extremely high.”