Valeant Pharmaceuticals Intl Inc: Does VRX Have Enough to Survive?

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Anyone following the hailstorm that has been Valeant Pharmaceuticals Intl Inc (VRX) knows shares have lost over 80% of their value over the last 12 months. VRX has been more or less flat in recent months, though, raising questions about a possible bottom and, even more optimistically, a possible recovery.

Valeant Stock: Does VRX Have Enough to Survive?The latter came to the forefront this week as Valeant announced plans to make sweeping changes to its board and as activist investor Bill Ackman pledged to push the company to lower the price of four expensive but life-saving drugs — drugs that are now the focus of a congressional probe and are thus in turn driving investors away in fear.

In case you forgot, Valeant raised the price of two drugs by 720% and 310% after buying them last year — and that’s small peanuts compared to the four-digit percent increases for two other drugs.

Time to Celebrate for VRX?

The changes to the board and the pressure from Ackman are supposed to be good news for Valeant stock … but it’s good news that must be kept in perspective. The reason folks are happy and headlines are pouring out is because there was a very strong possibility that VRX was nearing its end.

In the most recent earnings call, for example, management slashed guidance for the coming quarter and warned about a potential default on its debt. Indeed, the company has about $30 billion of debt according to Reuters, and “has been negotiating with creditors, some of whom issued notices of default after it missed a deadline for the filing of its financial results.”

But Ackman has expressed that keeping the company from bankruptcy is not just the top priority, but a quite achievable one. Indeed, I pointed out previously that Valeant is still sitting on $1.4 billion in cash and enough other assets to meet its current obligations — a silver lining in a laundry list of concerns.

In fact, I pointed out months ago that the possibility of going under was probably overblown for VRX.

Still, the negative publicity, ongoing congressional probes and fact that VRX still lacks R&D and an alternative business and pricing model are more than small remaining red flags.

Besides, as I also pointed out before, VRX is bleeding cash regardless of what management adjusts numbers and estimates to say.

Mega-trends aren’t necessarily working in favor of pharma anymore either; the healthcare tailwinds are more elusive thanks to political concerns, and investors in general are getting pickier.

With that in mind, my thesis on Valeant stock remains. While Ackman and a personnel shuffle are helping VRX stay alive, it’s still gasping for air. And the cold, hard reality is that the company’s huge debt load, when combined with a variety of headwinds, will make a true recovery the result of a long, hard haul.

You have the option to sit that haul out, and that’s what I recommend doing.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/valeant-stock-vrx-survive/.

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