Photographer: Kristoffer Tripplaar/AP Photo

Valeant’s 2016 Has Been All Pain, No Gain Amid Record Stock Drop

  • Drugmaker has lost $85 billion in market value since 2015 peak
  • Promised asset sales haven’t materialized under new CEO

Of all the major health-care stocks to own in 2016, perhaps the worst to own has been Valeant Pharmaceuticals International Inc.

Despite getting a new chief executive, promising to pay down its debt, and overhauling its operations, the drugmaker has seen its shares lose 87 percent of their value in 2016. The year-to-date decline is bigger than any of Valeant’s peers belonging to the 60-member Standard and Poor’s 500 Health Care Index. The drop would also make it the eighth-worst on the 180-member Nasdaq Biotechnology Index, whose largest loser was Concordia International Corp. -- a drugmaker sometimes compared to Valeant. The bonds have plunged as well.

On Thursday, one of Valeant’s few remaining analysts with a buy rating downgraded the stock. “Our investment thesis that management would stabilize the business and execute accelerated deleveraging via divestitures has been wrong,” said Morgan Stanley’s David Risinger, who had upgraded the shares in August.

Valeant Chief Executive Officer Joe Papa, who took over in May, has had little good news in a year where the company cut its financial forecast three times, was investigated by law enforcement and said that sales of key products were falling. At an investor conference Wednesday, Papa blamed the “noise” of media scrutiny for the company’s troubles.

‘Get Their Clicks’

“People like to write articles about Valeant. They may not have any of the facts, but they like to do that. And they like to get their clicks, and they’ve done that,” Papa said.

The stock fell 4.5 percent by the end of the day of his comments, and closed down 3.7 percent to $13.60 on Thursday, the lowest price since December 2009.

In a statement, Valeant cited a committee to address drug pricing, its reformed management team, increased transparency and improved pipeline as ways it was getting better. “Our team has done an enormous amount of work over the past several months to stabilize the company and we are well-positioned to execute in 2017,” Valeant said in an e-mailed statement.

There are a few optimists -- sort of. Annabel Samimy, an analyst at Stifel Nicolaus & Co., has a buy rating on the stock.

“Are you asking me because I’m the only one?” she said when reached by phone on Thursday. She’s one of five buy ratings, among 13 holds and five sells.

Her 12-month price target is $50, based in part on the value of Valeant’s units including Salix, Bausch and Lomb and dermatology products. The portfolio is “slowly recovering," she said, and she is encouraged by an expansion of a key drug’s salesforce, a pipeline that includes psoriasis drug brodalumab, Papa’s management shakeup, and the possibility of selling assets.

“The only way they can get full credibility is if they actually execute the plan,” calling it “toxic’ and “probably one of the single worst” health-care stocks to own in 2016. “There’s a sentiment issue that’s dragging them down now.”

Suffering Bonds

Valeant’s bonds have performed almost as poorly as the shares.

The company’s most actively traded debt, $3.25 billion of 6.125 percent coupon notes, has plunged 14.25 cents this year, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds now trade at 74.5 cents on the dollar for an effective yield of 10.85 percent. Moody’s Investors Service downgraded the company’s credit rating three times in 2016, two of which came in a three-week span in March, leaving Valeant ranked six steps below investment-grade.

Much of the concern over the debt has been related to asset sales, and whether they could cut the company’s leverage and keep it out of default.

In August, Papa said the company could sell about $8 billion in non-core assets to help pay down debt. At a Morgan Stanley investor conference the next month, he told Risinger, the analyst, that Valeant had hired bankers to do help with the divestitures. “By the end of the year, we’ll start to see some announcements on these asset sales.”

Salix Plans

Last month, Valeant was said to be in talks to sell its core Salix division,which it bought in 2015 for $11.1 billion, to Takeda Pharmaceutical Co. Instead, the talks fell apart over price, and Valeant will keep the business. Since Papa’s $8 billion promise, the company has announced one transaction worth $60 million.

The company has “started the process with these non-core assets,” Papa said during an interview with CNBC on Thursday, calling the timing “on track.” “I’m very optimistic we’ll get that done.”

Through the year, major investors have been burned. Bill Miller, the famed Legg Mason Inc. investor, said on April 14 -- before Papa took over -- that he thought the stock could double and was buying shares.

Over the next six months, Valeant lost 31 percent.

Miller made the same case down on Oct. 24, saying in an interview on CNBC, “The stock doubles in three years.”

Since then, the shares are down another 37 percent. Reached Thursday, Miller acknowledged he’d been wrong but that he still believes Valeant has a future, partly because of the new management.

“We think it’s very attractive at these levels,” Miller said. He bought the stock when it was in the $30 range, and said he thinks the fundamentals of the company haven’t changed.

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