After forecast cut, Valeant stock collapses as investors head for the exits
- Valeant's stock collapsed in value yesterday, falling by over 50% as markets quickly soured on downgraded 2016 guidance from the company. In a much-delayed business update Tuesday morning, the troubled drugmaker slashed its sales forecast for the year by $1.5 billion and signaled weaker Q1 outlooks for its dermatology and gastrointestinal businesses.
- Meant to calm investors concerned over a spiral of bad news and a surprise SEC investigation, the update contained a major typo which overstated a certain earnings measure by $600,000. Valeant originally reported it expected $6.2 to $6.6 billion in EBITDA over the next four quarters. In the conference call, however, the chief financial officer indicated the figure was actually $6 billion.
- Following the disastrous day of trading, the major Valeant backer and Pershing Square activist Bill Ackman pledged a "much more proactive role" in the company in a letter to his investors.
Despite CEO Mike Pearson's attempts to highlight positive developments, such as quick returns from Valeant's growing partnership with Walgreens, the update prompted new worries rather than calm existing ones.
In a letter to Pershing Square investors, Bill Ackman said investors had lost "total confidence" in the company. "We are going to take a much more proactive role at the company to protect and maximize the value of our investment," he said.
"We continue to believe that the value of the underlying business franchises that comprise Valeant are worth multiples of the current market price. Getting to those values, however, will require restoration of shareholder confidence in the management and governance of the company."
Ackman also pointed to a growing concern that Valeant's prolonged delay in filing its annual Form 10-K with the Securities and Exchange Commission could lead to a partial default on the company's loans.
If Valeant does not file by April 29, it would be in breach of its reporting contract and its lenders could accelerate payment under current credit agreements. Pearson estimated the company would file in April, but couldn't promise an exact day, according to the Wall Street Journal.
The filing has been delayed due to an ongoing internal investigation by an ad hoc committee into Valeant's accounting practices, particularly as they relate to the now-severed relationship with the specialty pharmacy Philidor.
Up until a few months ago, Valeant had been aggressive in increasing the price of drugs, particularly ones acquired from buying out other companies. But renewed scrutiny on drug prices by Congress and the broader public have pressured the company to dial back its pricing strategy. The company canceled almost all of its planned price increases for the first quarter and Pearson pledged future hikes would be more modest and in line with industry standards.
But with new acquisitions likely limited, the company will have a challenging pivot to make from a price-based growth model to one driven by prescription volume.
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