Immense uncertainty lingering over Valeant Pharmaceuticals International Inc. prompted analysts at RBC Capital Markets to downgrade the stock and cut their price target by a lot more than $100.
Valeant under investigation by U.S. securities regulator, drugmaker reveals
The SEC probe is outside of an existing investigation right into a company purchased by Valeant this past year, Salix Pharmaceuticals, said a person acquainted with the matter.
Shares from the Canadian pharma company were battered on Monday amid heavy newsflow. The firm established that Chief Executive Officer J. Michael Pearson was returning from medical leave, and concurrently refrained from releasing an up-to-date financial forecasts and it is fourth-quarter earnings report.
The embattled firm also revealed that it\’s under investigation through the U.S. Filing.
\”This is yet another element that investors will need clarity on before the valuation multiple is expanded,\” wrote RBC Analyst Dougals Miehm in reaction to the SEC probe. \”As such, management and board credibility may, unfortunately, be further eroded in the short term.\”
RBC lowered its rating around the stock to \”sector perform\” from \”outperform\” and slashed its price target right down to US$85 from US$194, which represents a premium of nearly 30 per cent to Monday\’s closing price.
Concerns over Valeant\’s accounting practices, particularly its relationship with specialty pharmacy Philidor RX Services LLC, as well as the extent to which its top-line performance continues to be buoyed by price rather than volume increases, have weighed around the share price since August. To add to the pain, Moody\’s also said hello was considering lowering the company\’s credit rating.
The stock has fallen nearly 75 percent from the all-time high after declining by 18 per cent on Monday.
Management has some explaining to do to placate the laundry list of worries that investors might have, based on Miehm.
- Valeant\’s female libido pill C that it bought for US$1B C offers \’marginal\’ libido benefits: studyValeant Pharmaceuticals International Inc CEO Mike Pearson returns from medical leave, company withdraws guidance and delays results
\”Valeant will probably trade at a discount to peers until several issues are addressed. These items include the delayed 10-K filing and fourth quarter results, the withdrawal of guidance, the ongoing investigations, the ad hoc committee\’s report, and also the company\’s potentially strained relationships with constituents in the U.S. healthcare system (managed care organizations and pharmacy benefit managers),\” he wrote. \”Additional undisclosed issues (if any) could also require resolution.\”
However, the analyst doesn\’t have an unduly bearish view on the firm\’s longer-term prospects.
\”When we\’re certain that the company has lots of top quality businesses, unresolved issues limit our capability to maintain conviction around the shares,\” explained Miehm.
According to data compiled by Bloomberg, a majority of analysts continue to have a \”buy\” rating around the stock. However, as noted by Bloomberg News, a number of analysts have also soured on Valeant in recent days, with Scotiabank placing its rating under review and Deutsche Bank AG suspended its rating.
\”We have always been skeptical of the VRX business design that had formerly depended heavily on fast-paced acquisitions, aggressive cost cutting, tax arbitrage, aggressive US price increases, and a heavy debt load,\” wrote Deutsche Bank Analyst Gregg Gilbert.