Shares of Valeant Pharmaceuticals, Inc.VRX slumped 85.3% in 2016 eroding a chunk of shareholders net worth. Shares of Valeant underperformed the Zacks classified Medical-Drugs industry 2016 as well, taking into account a decline of 22.9% for the industry.
2016 began on a shaky note for Valeant with the company being in the spotlight in the last quarter of 2015 after a price gouging tweet from Hillary Clinton. As the year progressed, the company saw itself caught in a series of lawsuits along with a delay in regulatory filings. In Mar 2016, company's chief executive officer (CEO), J. Michael Pearson, received a subpoena from the Senate Aging Committee and was asked to testify before the committee on Apr 27 in connection with the price hike issue.
This was the third hearing in a row that the committee was conducting to investigate sudden aggressive price hike of the decades-old Rx drugs. The first hearing of the series was held in Dec 2015. The second hearing took place on Mar 17, wherein the committee analyzed the monopoly business models of Turing and Retrophin, both of which were formerly headed by Martin Shkreli.
Thereafter, Pearson stepped down leaving the company in turmoil.
Alongside, an accounting review related to Philidor was undertaken by the ad hoc committee appointed by the board of directors. Valeant's relationship with Philidor Rx Services, a specialty pharmaceutical company providing back-end services, came under the scanner in Oct 2015 after it was alleged that the latter was urging pharmacy benefit managers to opt for expensive drugs over their cheaper generics.
In Feb 2016, the committee reported the identification of approximately $58 million of net revenue, previously recognized in the second half of 2014, which were supposed to be identified on the supply of products to patients rather than on delivery to Philidor. These accounting restatements led to a delay in the company's regulatory filings.
With its new CEO, Joseph C. Papa, Valeant started a rebuilding process. However, the dismal third-quarter results and subsequent lowering of the guidance indicates further trouble ahead. The company is facing generic completion for its neurology products while the dermatology segment is also facing weakness. On the other hand, Bausch + Lomb / International segment is experiencing a decline in product sales due to lower realized prices.
Meanwhile, on Nov 8, 2016, Moody's Investors Service downgraded the company's credit rating to B3 from B2. A downgrade will increase the company's cost of borrowing and add to the existing debt burden.
With the President-elect Donald Trump's focus on drug pricing, Valeant will continue to be in the spotlight for pricing of drugs along with companies like Mylan MYL .
Hence, we believe that there will be no end to Valeant's woes in 2017.
VALEANT PHARMA Price and Consensus
Valeant currently carries a Zacks Rank #5 (Strong Sell).
Key Picks in the Sector
A couple of better-ranked stocks in the health care sector include Sucampo Pharmaceuticals SCMP and Endocyte, Inc. ECYT . While Sucampo carries a Zacks Rank #1 (Strong Buy), Endocyte is a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Sucmapo's earnings estimates increased from $1.03 to $1.22 for 2016 and from $1.30 to $1.74 for 2017 over the last 60 days. The company posted a positive earnings surprise in all of the four trailing quarters with an average beat of 35.5%.
Endocyte's loss estimates for 2016 narrowed from $1.11 to $1.04, while the loss for 2017 narrowed by two cents.
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