Shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) were under heavy selling pressure Friday, with VRX stock falling as much as 5.8% to a new 52-week low of $8.36 after the embattled drug company announced that its new plaque psoriasis drug, Siliq, will cost $3,500 per month.
Once Canada’s most valuable company, with VRX stock trading north of $300 in the summer of 2015, Valeant Pharmaceuticals has become synonymous with corporate greed. The company has shot itself in the foot on multiple occasions for precisely the sort of thing that happened on Friday. In this case “price gouging.” And investors saw it right away.
VRX stock, which had already plunged 41% year to date, closed Friday at $8.52, down 4.17%. The company thinks Siliq — rights for which it acquired from AstraZeneca plc (ADR) (NYSE:AZN) — is the answer to its financial problems.
Siliq is an injectable drug intended for patients with moderate-to-severe symptoms of the chronic skin condition, who haven’t responded to other medications. But at $3,500 per month, Valeant is pricing Siliq in a range where the people who need it may struggle to get it.
Valeant, however, proclaimed that $3,500 price tag was “the lowest injectable biologic psoriasis treatment currently on the market.” The company, which plans to start selling and marketing Siliq in the second half of this year, insists that the price was evaluated and approved by its Patient Access and Pricing Committee — a group formed a year ago by Valeant after it suffered a spate of negative publicity related to questionable drug pricing practices.
With some $30 billion in debt on its balance sheet, Valeant is desperate for cash and Siliq’s aggressive price speaks to that despair. But there is time and many expenses between now and when the drug’s sales get to a level that can help Valeant boost its operating income. Even then — and as a matter of making “ends meet” — Valeant would still need to successfully renegotiate down its debt covenants.
Bottom Line for VRX Stock
With VRX stock falling more than 96% from its all-time high, some value investors might think Friday’s decline was a buying opportunity. But VRX stock — which finally lost long-time supporter, activist hedge fund manager Bill Ackman — is still as toxic today as it was a year ago. Although there are still those drawn to the appeal of a cheap price, there is no indication that VRX can avoid tanking all the way to zero.
Simply put, until Valeant can demonstrate it can consistently execute to grow revenue and profits, investors should stay away from VRX stock. The company, which is looking to sell off assets to grow cash, has not shown that it can be trusted. And, as it has done for the past year, the shares will continue to attract short sellers, who have been the only ones making money here.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
