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Valeant Shares Down 37% since August; More Pain Ahead?

Shares of Valeant PharmaceuticalsVRX have plummeted around 37% in the last two months. The downtrend was particularly steep in September after Democratic presidential candidate Hillary Clinton commented on the rising prices of specialty drugs that led to a massive selloff in the biotech sector.

Last week, all 18 Democratic members of the House of Committee on Oversight and Government Reform requested Chairman Jason Chaffetz to issue a subpoena to compel Valeant to provide documents relating to the massive price hike of two of its drugs.

The drugs in question are Isuprel and Nitropres. These drugs were acquired by the company earlier in 2015 and are used by hospitals and other providers to treat serious heart conditions. Since the acquisition, the company has increased their prices by 212% and 525%, respectively. We note that Valeant has been quite aggressive on the acquisition front over the last few years and has now come into the spotlight for hiking prices of the drugs it purchased.

The Democrats believe drug companies should be accountable when they deploy the strategy of buying old, neglected drugs and convert them into high-priced 'specialty' drugs. Valeant was accused of following the same business model as Martin Shkreli, whose company had spiked the price of Daraprim from $13.50 to $750.

The Road Ahead

In response, the chairman of the company has written a letter to its shareholders stating that the company is well-positioned for strong organic growth, even with negligible or no price increases. However, we believe Valeant will not be able to get away with this easily. Hence, investors will continue to bear the brunt of the decline in its stock price.

Pricing dynamics in the health care sector have been in the spotlight since 2014. We remind investors that pharmacy benefit manager Express Scripts Holding Co. ESRX released data in Mar 2015, wherein it was mentioned how new expensive hepatitis C (HCV) therapies, along with the exploitation of loopholes for compounded medications, fueled a phenomenal 13.1% surge in drug spending in the U.S. in 2014.

The Democrats are expected to focus on this issue strongly. It remains to be seen what strategy Valeant will adopt to counter the negative investor sentiment. We expect the company to throw some light on the same on its third-quarter earnings call scheduled for Oct 19.

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Valeant currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector are Abbott Laboratories ABT and AbbVie, Inc. ABBV . Both carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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