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Will Valeant’s Share Price Recover from the Recent Fall?

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Share price took a sharp fall after preliminary earnings release

After Valeant Pharmaceuticals International (VRX) announced its preliminary 4Q15 earnings on March 15, 2016, its share price fell sharply by ~51.4% that same day. Over the past one year, the stock has fallen a whopping 83%.

The graph above exhibits the plunging price of Valeant stock. For further details on the controversies associated with the stock price fall over the last year, please refer to Why Did Valeant Shares Fall after Strong 3Q15 Results?

Pfizer (PFE), Alexion Pharmaceuticals (ALXN), and Shire (SHPG) have fallen ~13.1%, ~24.0%, and ~36.4%, respectively, over the past year.

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What drove the recent fall?

Although Valeant just met its revenue expectations in 4Q15, EPS (earnings per share) was lower than the estimates. The company has delayed its 10-K filing.

The main reasons for Valeant’s drastic stock fall on March 15 were much lower sales expectations over the next 12 months, a possible default on debt, and a change in company strategy.

If Valeant doesn’t file its 10-K within the stipulated time, bank lenders may accelerate loan payments. Investors are losing faith in Valeant, which earlier was a Wall Street favorite.

CVS Health has restricted sales of Jublia, a key Valeant product, to cut down on dermatology drug spending. Jublia costs around $1,000 per 8-milliliter bottle. Compare this to the generic version of Lamisil, which costs around $20 for a 12-week supply. This could affect Valeant, as Jublia sales might fall. The performance of key products such as Jublia, Xifaxan, and brodalumab could play a critical role in the recovery of VRX stock.

To avoid the direct risk associated with the company’s stock price, investors can invest in the VanEck Vectors Pharmaceutical ETF (PPH). Valeant Pharmaceuticals accounts for 3.2% of PPH’s total holdings.

In the next part, we’ll see why Valeant is expecting lower sales in 2016.

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