Even though the drug maker is considering multiple paths to recovery under new CEO Joseph Papa, its return could still take some time
Valeant Pharmaceuticals Intl. Inc. (NYSE:VRX) is in hot waters after it lowered its earnings guidance twice this year. According to Morgan Stanley, the drug maker is expected to again lower it in the upcoming second quarter earnings call.
Morgan Stanley analyst David Risinger pointed out that the company generated only $558 million in operating cash in 1QFY16. This figure is negligible compared to the drug maker’s $32 billion debt. Veritas Investment Research analyst Dmitry Khmelnitsky said: “Valeant particularly risks violating lender-friendly covenants including interest-coverage requirements if the company’s earnings before interest, tax, depreciation and amortization guidance for the year falls short of its current $4.8 billion level by $200 million to $300 million.”
Analysts across the Street hold different opinions for Valeant. Some say that the company will have to sell off its core assets to make a comeback to the pharmaceutical space. Others believe the drug maker should sell non-core assets and orphan drugs to reduce its debt.
Keeping in view the plan proposed by CEO Joseph Papa, the company is showing signs of recovery, albeit a bit slow. The approval of the new molecules from the Food and Drug Administration (FDA) will also aid Valeant in debt reduction, but it will take some time. The interest rates are expected to be on the lower side for some time.
The drug maker has seen shares tank 90% after the presidential candidate Hilary Clinton tweeted regarding drug price hikes. On the other hand, Valeant now has a massive debt pile due to its acquisitions of cheaper assets, which are not generating enough revenue to patch up the decline. The company’s dermatology segment is also showing stagnant growth due to its distribution agreement with Philidor RX Services.