Shares of Valeant Pharmaceuticals crashed Tuesday after the embattled drugmaker finally reported preliminary fourth-quarter results that missed profit expectations, slashed all its 2015 financial forecasts and for the first time conceded it’s technically on the verge of defaulting on its debt.
With the company fending off troubles on all sides, CEO Michael Pearson tried to reassure investors and analysts that his team can turn things around and return to growth.
That’s a tough job, given the virtual Murphy’s Law of problems facing Valeant: falling sales, increased pressure to cut drug prices, massive debt, three ongoing federal probes of its accounting and pricing practices, and shareholder lawsuits in the U.S. and Canada, Valeant’s base.
Investors, already livid that Valeant shares have plunged to about one-fourth of their $263.81 high last August, didn’t buy Pearson’s somewhat-rosy outlook. They sold off shares furiously, with intraday volume more than seven times a normal day’s level.
At the close of the trading session, shares had lost $35.53, or 51.5 percent, to $33.51.
On top of all the other problems, Pearson said an ongoing probe of Valeant’s 2014 financial reporting by an ad hoc committee it appointed means it won’t be able to file its annual financial report with the Securities and Exchange Commission until sometime in April at the earliest.
That would miss filing deadlines of March 16 and March 30 contained in Valeant’s agreements with bondholders and creditors, respectively. If those debtors chose to declare the company in default on its debt, which totals about $30 billion, Valeant could be forced to make repayments faster and see limits on future borrowing.
The Canadian drugmaker is facing an SEC investigation of its accounting, plus scrutiny from Congress and attorneys general in two states over its practice of buying rights to old drugs and raising their prices a few hundred percent. Valeant said it will stick to modest or no price increases, noting demands from insurers for much bigger discounts.
“We do think we have a plan that will produce cash flow and allow paying down debt,” he told analysts during a conference call, adding, “In terms of management credibility, we have to earn it.”
Pearson returned to work two weeks ago after two months recovering from severe pneumonia.
He said Valeant is in confidential discussions with partners on selling some noncore assets and hopes to use that and other money this year to pay off $1.7 billion of the debt, accumulated from a spree of acquisitions in recent years.
The company has made some concessions to shareholders, this month adding three directors to its board, including an executive from Pershing Square Capital Management, activist investor Bill Ackman’s hedge fund. Pershing is one of Valeant’s biggest shareholders.
On Tuesday, Valeant Pharmaceuticals International Inc. said it lost $336.4 million, or 98 cents per share, in the three months ended Dec. 31. Excluding one-time items, earnings were $2.50 per share, far short of per-share earnings of $2.64 that Wall Street expected, according to a survey by Zacks Investment Research.
Revenue totaled $2.79 billion, which topped analyst projections for $2.76 billion. The company said sales were down in its dermatology, gastrointestinal, ophthalmology, women’s health and Western Europe businesses, among others.
Deb Jorn, the executive vice president in charge of its U.S dermatology and gastrointestinal businesses, resigned on March 3.
Valeant said it settled a lawsuit over a billing dispute with R&O Pharmacy LLC, with R&O making an unspecified payment to Valeant. Valeant has said that Philidor’s pharmacy network includes R&O. Other terms of the settlement remain confidential, and Valeant said it refutes any suggestion of wrongdoing.
Separately, Valeant said it has struck a deal to distribute Mysimba, a diet pill made by Orexigen Therapeutics Inc. of San Diego, in central and eastern Europe.
Valeant, which is based in Laval, Quebec, now anticipates a first-quarter adjusted profit between $1.30 and $1.55 per share on revenue in a range of $2.3 billion to $2.4 billion. Its prior outlook was for an adjusted profit between $2.35 and $2.55 per share on revenue in a range of $2.8 billion to $3.1 billion.
For 2016, the company now foresees an adjusted profit between $9.50 and $10.50 per share on revenue in a range of $11 billion to $11.2 billion. Its previous forecast was for an adjusted profit between $13.25 and $13.75 per share on revenue in a range of $12.5 billion to $12.7 billion.
Analysts polled by FactSet expect first-quarter profit of $2.62 per share on revenue of $2.84 billion and a 2016 profit of $13.27 per share on revenue of $12.42 billion.