Valeant Pharma (VRX) Halts the Bloodletting Following Conference Call
Down 52% from the Sept 21 Hillary Clinton tweet, 42% from the initial Sept 28 Citron Research short report, and 22% from Citron's Oct 21 'smoking gun' report, the last month or so has been a low point in Valeant Pharmaceuticals' (NYSE: VRX) corporate history. Today bears and bulls are battling hard as the company attempted to address concerns raised by short sellers in a conference call earlier. The focus of the call was on the company's ownership and relationship with specialty pharmacies, with Philidor front and center. The company also appointed an Ad Hoc committee to review Philidor.
On the call, the company said specialty pharmacies account for 7.2% of Valeant net revenue year-to-date, while Philidor accounts for 5.9% of Valeant net revenue year-to-date. They said the Philidor relationship was not disclosed because it was not considered material to Valeant’s business. Also the company said it does not control and does not believe it has legal liability for Philidor. Valeant disclosed its paid $100 million upfront for the right to exercise an option to acquire Philidor for up to 10 years for $0. This is seen as unusual to many. Also, the company didn't provide much detail on allegations made in today's Wall Street Journal which said employees at Philidor also worked at Valeant and used e-mails with alternative names. The company said it takes the concerns "very seriously" and they will be addressed by the Ad Hoc committee.
Analysts were mixed-to-positive on the disclosures and conference call, although some suggest more needs to be done to rebuild investors confidence.
"Overall, we found the additional disclosures as incrementally positive, but we believe there is still much more that needs to be done to rebuild investor confidence, which we argue has been significantly weakened," BMO Capital's Alex Arfaei said following the conference call. Arfaei downgraded the stock last weak amid the questions surrounding the specialty pharmacy model.
Meanwhile, Evercore ISI's Umer Raffat was positive on the call. "I think the call went really good, actually," he said in a video to clients. Raffat elaborated that the company usually struggles with communications, however the slides today were "very well written". He said the company did a "very good job at clarifying." While he believes today's WSJ article is weighing on the stock, he said the feedback from investors was positive. On the issues brought up by the WSJ, he notes the company said this is not a legal issue, but a compliance issue. He also note that feedback from investors suggest that Valeant should do away with the Philidor-like structure on specialty pharmacies. He notes three catalysts going forward: 1. Ad hoc committee results, 2. the company will respond to R&O lawsuit by end of month, 3. hearing in the 2nd-week of December related to Philidor/R&O.
After trading down more than 10% before the today's call, shares of Valeant last traded down fractionally (0.5%) at $115.59.