Shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is at significant risk of a technical breakdown, threatening a 13% year-to-date recovery for the struggling pharmaceutical outfit. Right now, a 2%-plus loss Tuesday in VRX stock seems tame compared to some of its other drop-offs, but it could portend much worse ahead.
Valeant was the center of a well-publicized campaign by short-seller Andrew Left of Citron Research back in 2015 alleging the company recorded false sales to specialty pharmacy Philidor. This, as well as getting caught up in a drug price inflation controversy related to the acquisition of drugs in M&A transactions followed by the raising of prices in the open market, often by massive percentage gains.
Shares fell nearly 97% from their 2015 high of $263.81 to the low set this April.
VRX stock seemed to be turning things around. Shares received a lift back in June after announcing Valeant had appointed hedge fund manager and billionaire investor John Paulson to its board. This was followed by an upgrade by analysts at Deutsche Bank on July 17, with a price target increase to $19 and the maintenance of a hold rating.
In fact, the analyst community as a whole seemed to be lightening up on VRX. In addition to Deutsche Bank’s upbeat note, Cantor Fitzgerald analyst Louise Chen felt pretty positive after speaking with VRX management last week. Highlights include an effort to lower debt and bring down balance sheet leverage (a point of concern for many on Wall Street), a slowdown in the media attention focused on the company, and an underappreciated drug pipeline including Siliq which is used to treat plaque psoriasis.
Slowly, however, Valeant appears to be losing its grip.
Today, VRX stock is testing the lower end of a two-month consolidation range that risks a breakdown of the four-month uptrend that’s seen shares more than double from their low of $8.31. This, despite a recent “golden cross” — the bullish technical signal in which the 50-day moving average climbs above the longer-term 200-day moving average.
This has set up a possible test of the May/June consolidation range near $12 — which would be worth a near 30% decline from here.
What’s next? Well, investors should be even more honed in on the company’s quarterly report, due out Aug. 8 before the bell. Analysts are looking for earnings of 96 cents per share on revenues of $2.2 billion.
When VRX stock last reported on May 9, earnings of $1.79 crushed expectations for a loss of $1.93 despite an 11.1% drop in year-over-year revenue to $2.1 billion.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
