Valeant’s image may have hit a new low after Tuesday’s Q1 call

Ruane, Cunniff & Goldfarb, once Valeant Pharmaceuticals’ largest shareholder, has lost confidence in the Canadian drugmaker--and it’s far from the only one.

On Tuesday, the firm reported owning 16.1 million Valeant shares as of May 31, down by almost half from 30.3 million shares at the end of March, The Wall Street Journal reports. The move makes activist investor and new Valeant director Bill Ackman the company’s largest investor with 30.7 million shares.

And Ruane has plenty of company. Thanks to political pricing pushback, channel-stuffing allegations and debt-default concerns--to name a few of Valeant’s significant hurdles over the past 10 months--its stock has plummeted as investors fled for the doors. And Tuesday’s Q1 conference call with new CEO Joseph Papa didn’t reverse that trend. In fact, it apparently exacerbated it.

The call started with Papa lopping millions off the company’s guidance--thanks, in part, to a Walgreens distribution deal that’s hurting the company’s troubled dermatology business instead of helping it. (“Every time a prescription goes out the door, we’re taping dollar bills to that prescription,” as Papa put it.) And despite the plans Papa outlined for “stabilizing” the freefalling company, shares sunk even further.

Some analysts, too, are just as skeptical. “Valeant is confident they will not run afoul of its financial maintenance covenants, but we’re not so sure,” Piper Jaffray analyst David Amsellem wrote in a note seen by Bloomberg. “It is not clear to us that the dynamics surrounding the U.S. dermatology segment and Xifaxan are poised to get better near-term. This could easily be a new normal.”  

One move that could potentially restore some confidence? More transparency at Valeant, which has traditionally kept its financials murky. Last month, the WSJ reported that the SEC had taken issue with Valeant’s use of “non-GAAP” financial measures, writing to the company that they “believe revisions to your future earnings releases and investor materials are appropriate”--and Wells Fargo analyst David Maris on the call pressed the company for failing to provide GAAP EPS guidance for the rest of this year.

And while CFO Robert Rosiello expressed some resistance on the call--“we find for our investors that it is more informative to guide to the non-GAAP, and we don’t feel we can accurately predict the GAAP guidance"--Valeant noted later on to analysts that it may be willing to change its tune.

“The team noted at the subsequent meeting that while it believes the non-GAAP approach is a better reflection of operating performance, it will explore providing GAAP projections if investors want the information,” Deutsche Bank analyst Gregg Gilbert wrote in a note to clients.

- read the call transcript
- get more from The Wall Street Journal (sub. req.)
- see Bloomberg's take

Special Report: The most influential people in biopharma today - 2016 - J. Michael Pearson - Valeant

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