Pain could continue for Valeant investors
Shares of Valeant Pharmaceuticals International (VRX) closed virtually unchanged Wednesday, but investors of the embattled drugmaker could continue to face financial pain.
After fluctuating between gains and losses, the stock finished the day up 3 cents at $33.54, following Tuesday's worst-ever plunge that erased more than half of Valeant's financial value.
The overall 87% drop since the stock reached a high of $262.52 in early August means Valeant currently has a market value of roughly $11.4 billion, well below the Canada-based company's $30.3 billion debt load.
Valeant CEO J. Michael Pearson said during a Tuesday conference call with financial analysts that the firm will reduce its debt and consider selling non-core assets in an effort to steady the drugmaker's finances and avert a newly-disclosed bond default risk.
However, Pearson and other company officials predicted Valeant would pay down only $1.7 billion of the debt this year, well below the $2.25 billion projection issued in December.
Moody's Investors Service downgraded Valeant's rating further into junk bond territory, to B1 from Ba3, and said the rating remained under review for further reductions. The decision "reflects slower progress at deleveraging based on weaker growth in several core businesses" and other factors, said Michael Levesque, Moody's Senior Vice President.
Other financial data also raised questions about the value of some of the acquisitions Valeant made during the last few years in a strategy that fueled the company's rapid growth.
Valeant agreed to buy Sprout Pharmaceuticals in August for $1 billion, and predicted the North Carolina-based firm's recently approved libido-boosting medication Addyi — the so-called female Viagra — would become a major seller. As recently as December, Valeant officials forecast Addyi sales of $100 million to $150 million during 2016.
But Tuesday, months after numerous media reports that showed U.S. doctors were writing fewer-than-expected Addyi prescriptions, Valeant officials told financial analysts the 2016 sales targets for the drug likely would not be met.
One of Valeant's major shareholders, Pershing Square Holdings hedge fund manager Bill Ackman, sought to shore up investor confidence Tuesday by issuing an email that said he continues to believe "that the value of the underlying business franchises that comprise Valeant are worth multiples of the current market price."
Ackman, who placed a Pershing executive on Valeant's board of directors last week, said he would "take a much more proactive role at the company to protect and maximize the value of our investment."
However, Ackman acknowledged that Valeant's Tuesday disclosure of lower-than-expected earnings, reduced financial guidance and potential default risk on the company's bonds "have caused investors to lose total confidence in the company."
Morningstar Analyst Michael Waterhouse wrote in an investor note that the drugmaker is "likely to avoid a technical default" on its bonds." But the outcome will hinge on Valeant management's ability to negotiate with lenders over the filing of a weeks-delayed annual report, "and get it completed by April," said Waterhouse.
Piper Jaffrey senior research analyst David Amsellem, who downgraded Valeant shares amid this week's plunge, said the company's disclosures raised uncertainty.
"There really are concerns about the core businesses," Amsellem said Wednesday in an Bloomberg Television appearance. Referring to Valeant's overall financial prospects, Amsellem said: "It very well may be a slow-melting ice cube."
Follow Paste BN reporter Kevin McCoy on Twitter: @kmccoynyc