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Valeant (VRX) Stock Declines 21% YTD: What Lies Ahead?

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Shares of Valeant Pharmaceuticals International, Inc. VRX have lost 21% year to date compared with the industry’s slip of 0.7%.



Valeant’s fourth-quarter performance was mixed, wherein the company missed on earnings but sales beat estimates. However, the guidance for 2018 was disappointing. The company expects total revenues in the range of $8.10-$8.30 billion, which was below consensus mark.

After a tumultuous period, Valeant started a rebuilding process with its CEO, Joseph C. Papa. Even though it is still early to comment on the rebuilding process but the company’s efforts to sell non-core assets and pay lower debt is commendable. As of Feb 28, 2018, the company reduced total debt by approximately $6.7 billion since the end of first-quarter 2016. While this is encouraging, the debt burden is still high.

Meanwhile, generic competition for key drugs will continue to impact results. Quite a few of the company’s products are slated to lose patent protection in 2018. A number of products already face generic competition such Ammonul, Atralin, Carac, Edecrin, Glumetza, Istalol, Isuprel, Locoid Cream, Nitropress, Syprine, Targretin capsules, Tasmar, Vanos, Virazole, Wellbutrin XL, Xenazine, Zegerid, Ziana and Zovirax ointment.  A few are slated to lose exclusivity in 2018 or beyond like Cuprimine, Elidel, Locoid, Lotion, Lotemax Gel, Lotemax Suspension, Mephyton, and certain products are subject to settlement agreements, which in aggregate represented 8% of revenues from the United States in 2017.

The dermatology business continues to be weak as third-party payers have dramatically reduced patient access to products like those that comprise the legacy portfolio. This, in turn, adversely impacted both net realized prices and unit volumes. The average selling prices continue to be lower than the historic levels. Management projectes that the dermatology business is expected to decline further in 2018 as compared to 2017.

Valeant has completed 13 divestitures since the beginning of 2016. Among them the notable ones are skin care brands (CeraVe, AcneFree and AMBI), Dendreon Pharmaceuticals, iNova Pharmaceuticals, Obagi Medical Products and Sprout Pharmaceuticals.

The company is currently facing a number of ongoing legal proceedings and investigations and inquiries by governmental agencies. These litigations will remain a hangover on the company’s shares.

Hence, it might be a while before the company turn arounds as management had projected.

Zacks Rank & Stocks to Consider

Valeant currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks from the same space are Regeneron Pharmaceuticals REGN, Ligand Pharmaceuticals LGND and Enanta Pharma ENTA. While Regeneron sports a Zacks Rank #1 (Strong Buy), Ligand and Enanta Pharma carry a Zacks Rank #2 (Buy), each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron’s earnings per share estimates have moved up from $18.65 to $18.68 for 2018 in the last 30 days. The company pulled off a positive earnings surprise in three of the last four quarters, with an average beat of 9.15%.

Ligand’s earnings per share estimates have moved up from $3.78 to $4.20 and from $4.75 to $5.32 for 2018 and 2019, respectively, over the last 30 days. The company delivered a positive earnings surprise in three of the trailing four quarters, with an average beat of 24.88%.

Enanta Pharma delivered a positive earnings surprise in three of the last four quarters, with an average beat of 373.1%.

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Regeneron Pharmaceuticals, Inc. (REGN) : Free Stock Analysis Report
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Valeant Pharmaceuticals International, Inc. (VRX) : Free Stock Analysis Report
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