One must have pity for Valeant shareholders who have seen their previous wealth at $250 per share in August 2015 drop to $65 dollars per share today. This blog identified the trend in posts Oct 5th 2015 (share Price $163) and November 3rd 2015 ($97) - an 82% decline from peak to today for shareholders who decided to trust in a turnaround and stay on board.
Both Valeant and Turing pharmaceuticals have been badly impacted by alleged price gouging on older medicines especially to US consumers. As noted in a previous blog, when one swims against government one can expect to find the currents daunting. In Valeant's case, along with issues thrown up by their relationship to their pharmacy benefit manager, which has required them restate their previous years accounts, they are also subject to an SEC investigation announced Monday.
The shareholder party that buoyed up Valeant for several years and saw them take on debt for acqusition to engineer impressive numbers has quickly turned into a wake. There won't be too many stories like Valeant in the coming years, at least not a story of a wild ride from obscurity to poster boy in Pharma. Not only has Valeant suffered a crushing reversal at every level, both US Presidential contendors Clinton and Trump have singled out the Pharma industry for special attention should either get elected. Make no mistake such attention won't be helpful to pricing or profits. The industry will hold both companies in long regard for the changed political climate.
There's alot of good news around the Biotech and pharma world. New drug approvals are more numerous and are hitting the market faster than they have for many years. Chronic diseases such as diabetes, obesity, cancer and cystic fibrosis have seen transformational care improvements delivered through innovation in the past decade.
Valeant and Turing may not have been the only one's using price increases to grow profits. In fact in terms of volume they may not have been the worst offenders. However now that the mill wheel has turned it is grinding very fine. Valeant and Turing are proving to be grist for that mill. Don't expect a phoenix like resurrection for either of their assets soon. The vultures are circling.
Investors should consider when the party is in full swing, and credulity is stretched too long, it may be appropriate to look for corporations with boards and executive teams whose value statements and behaviour does not resemble too much of a good thing. There are many such companies across the Biotech and Pharma world which although they may not achieve stellar growth, they will consistently beat inflation in annual earnings growth. Moreover some of them will deliver innovative medicines with novel impact for patients as they do.