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Concerns From Valeant's 10-K: $8 Billion Of Asset Sales Is Now A Mirage

Jim Swanson

Valeant Pharmaceuticals Intl Inc (NYSE: VRX) filed its 2016 10-K on March 3, resulting in pressure on shares. Valeant's disclosures are concerning and the business trends remain weak, which would likely continue to impact the company’s share price, Wells Fargo’s David Maris said in a report.

While maintaining an Underperform rating on the company, Maris noted a valuation range of $10-$13.

Concerning Disclosures

Valeant announced plans to refinance its debt. This could be a reason that the company refrained from providing EPS guidance for 2017 last week.

“Refinancing, to us, is a clear indication that the $8 billion of asset sales Valeant hoped for is a mirage,” Maris said.

The company’s 2016 10-K filing revealed that gross-to-nets had worsened, rising from 33.6 percent in 2015 to 40.6 percent in 2016. Receivable turnover was down from 4.4 to 3.7, resulting in a rise in days sales outstanding [DSOs] from 83 to 98 days.

Related Link: A Look Back At Valeant's Tumultuous 2016

While asset turnover worsened, non-GAAP net income margin contracted.

“Valeant's 2016 operating cash flow of $2.1 billion was the weakest since 2013, which for us is almost difficult to believe since Valeant spent more than $20 billion purchasing assets between 2013 and 2015,” the analyst wrote.

The legal section of the 10-K indicated that Valeant was facing 33 product liability lawsuits related to Shower to Shower. In 2016, Johnson & Johnson (NYSE: JNJ) had lost several lawsuits related to Shower to Shower, and still has around 1,200 pending cases, Maris noted.

Latest Ratings for VRX

Date Firm Action From To
Dec 2016 Morgan Stanley Downgrades Overweight Equal-Weight
Nov 2016 Mizuho Downgrades Neutral Underperform
Nov 2016 Rodman & Renshaw Downgrades Buy Neutral

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