Big Pharma Takes a Hit
Shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) plunged 25% on Tuesday as the company lowered its earnings guidance once more.
With management struggling to cope with the fallout from its accounting scandal, VRX stock hit a six-year low of $14.42. The company has thus far failed to execute a turnaround. (Source: “Valeant Shares Plunge as It Slashes Guidance Again,” The Wall Street Journal, November 8, 2016.)
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Valeant Pharmaceuticals Intl Inc (NYSE:VRX) as the company deals with an accounting scandal.Revenue slipped 11% year-over-year to $2.48 billion in the third quarter, leading to a net loss of $1.22 billion as the company wrote down the value of its Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) stomach drugs business.
Analysts weren’t all that shocked by the results, but the guidance caught them off guard. In a conference call with investors and analysts, CFO Paul Herendeen said that 2017 “will be a down year” in part because Valeant loses patent control over several drugs, including “Nitropress.” The heart medicine, alongside other neurological assets, is a valuable component of Valeant’s balance sheet.
There was also uncertainty caused by a delay in the U.S Food and Drug Administration (FDA) approving an experimental psoriasis drug, uncertainty that was compounded when the agency sent a warning letter to Valeant. The company has been under investigation by both U.S. Congress and federal regulators for fraud.
Some critics contend there were anomalies in Valeant’s accounting, while others argue it more closely resembles a hedge fund than a pharmaceutical company. The firm is trying to address these problems without explicitly validating the substance of the claims.
For instance, the company recently hired a new CEO who wants to pivot back toward more traditional pharma businesses. His appointment was supposed to have a calming effect on worried investors, but it has been overshadowed by the lowered guidance.
“This past quarter, we made further progress toward establishing the new Valeant,” said Joseph C. Papa, Valeant’s new Chief Executive Officer. “While we have revised our expectations for the remainder of 2016, I continue to be encouraged by the commitment of our employees who work each day toward meeting our mission of helping improve people’s lives through our healthcare products.”
Analysts are looking straight past Papa’s optimism to the story told by Valeant’s numbers. The company had previously predicted adjusted earnings of $6.60 to $7.00 for the year, but they are now estimating between $5.30 and $5.50.
