Seven minutes. That’s how long it took Valeant Pharmaceuticals Intl Inc (NYSE:VRX) shares to unwind the knee-jerk bullish response to news that the company’s plaque psoriasis treatment Siliq has been approved by the Food and Drug Administration. After opening up nearly 2% on Thursday, by 9:37 EST, VRX stock had made its way back into the red for the day … and it is still there.
The prod for the pullback in Valeant stock? Broadly speaking, investors remembered Valeant Pharmaceuticals still has more problems than it can feasibly solve, and its dire situation is apt to worsen before it gets better — the same headwind that has been working against VRX stock for a year and a half now.
Unfortunately, current and would-be Valeant stock investors are likely to continue dealing with this recurring pattern for a long, long time.
Don’t Get Too Excited About Siliq and VRX
Die-hard VRX shareholders are apt to disagree with the assessment. They’ll argue that not only is the approval of Siliq a real victory, but that the turnaround being led by CEO Joseph Papas also feels like it’s getting traction. Siliq may not be the victory it seems like it is on the surface though, and even if it were, it may not matter.
“[W]e believe that prescribing information may be even more restrictive than expected. Siliq is indicated for moderate-to-severe plaque psoriasis in patients who are candidates for phototherapy and systemic therapy, that no longer respond to these agents (in other words, as a drug of last resort). Siliq also has a Black Box warning for suicidal ideation and is only available through a risk management program that requires both physician and pharmacy training and certification, which we view as particularly onerous. We note that none of the other novel biologics (Taltz, Cosentyx, Stelara) have similar restrictions to access.”
Throw in the fact that Valeant will be splitting any Siliq revenue with AstraZeneca plc (ADR) (NYSE:AZN), and what you’re left with is something less than game-changing.
How to Lose Less Quickly?
Even beyond a Siliq letdown though, Valeant Pharmaceuticals is still mostly a lost cause.
Yes, Papas is selling assets and divisions, mostly to pay off what quickly became debilitating debt. In January, the company reported it was selling $2.1 billion worth of assets and divisions to pay down at least some of its $30.4 billion in long-term debt obligations.
It needs to do more of that though, and faster. Its debt burden is costing the organization roughly $1.8 billion per year. For perspective, over the course of the last four quarters, the company lost $2.28 billion on $10.02 billion in sales.
The bulls will defend Valeant stock all the same, pointing out that on an EBITDA basis there’s a glimmer of hope. (EBITDA measures profitability without factoring in interest payments, taxes, and depreciation).
Maybe. Even then though, the pros have their doubts. RBC’s Douglas Miehm and Joel Hurren recently explained:
“We believe that the focus of Valeant’s Q4/16 release and call will be on 2017 guidance and how much lower it will be relative to 2016 results. While VRX stated that 2017 Adj. EBITDA would be lower than 2016’s on its Q3/16 call, we anticipate that Adj. EBITDA guidance below $3.75B could lead to further share price weakness.”
The company’s EBITDA for the prior four quarters was $4.25 billion, so the bar is indeed set lower (and set at achievable levels). It raises the question, however … with the sale of its skincare brands and its Dendreon division in January at the same time Valeant is mulling the sale of its Salix division, is the company undercutting its own ability to produce the very revenue — and therefore EBITDA — it so desperately needs right now?