In the mid-2010s, Valeant stock was one of the darlings of Wall Street, receiving a great deal of attention from hedge funds and other investors.
However, the company’s reputation began to unravel in 2015, after it was accused of price gouging and fraudulent accounting. During this fall from grace, shares of Valeant shares plunged by 90 percent.
Since the scandal, Valeant’s stock price has remained relatively constant for several years, but is only a shadow of its former value.
However, the company is hoping that a turnaround plan from new CEO Joe Papa – as well as a rebranding as “Bausch Health” [NYSE: BHC] – will help reverse its fortunes.
With these strategies in mind, what’s the Valeant stock price forecast?
The Pros and Cons of Buying Pharmaceutical Stocks
Long-term potential: Healthcare analytics company IQVIA [NYSE: IQV] estimates that the global pharmaceutical market will grow to $1.5 trillion in 2021.
This would represent a dramatic growth of 50% since 2015, when revenues reached $1 trillion.
New discoveries and innovations: A variety of new treatments for issues such as musculoskeletal disorders, cancer, and diabetes have appeared in recent years.
These developments should help boost the revenues of companies doing cutting-edge pharmaceutical research. As another positive sign for the industry, the FDA has promised to “fast track” the approval process for many drugs.
But before buying pharmaceutical stocks, factor in some primary concerns, including:
Poor short-term returns: Pharmaceutical stocks are often seen as a sure long-term bet, especially as the baby boomer generation ages.
However, in the short term the sector can be quite volatile and unpredictable. Since August 2018, the XPH SPDR ETF for S&P 500 pharmaceutical companies is down roughly 20 percent.
Inherent issues with the industry: Generic drugs make it easier for competitors to swoop in and steal a company’s thunder.
As treatments become more effective and there are fewer diseases to treat, pharmaceutical companies may see lower profit margins. Hiking prices to combat this problem is likely to result in a public backlash.
Is Valeant Stock A Buy?
We’ve discussed the reasons why you may or may not want to invest in pharmaceutical stocks but what about Valeant stock in particular?
Since taking over in 2016, CEO Papa has cut the company’s debt burden by $6 billion from a high of $32 billion. After a few years of shakiness, the company claims that 2019 will be its year of growth.
The most recent results are in line with this projection.
In 2018, Valeant grew modestly by a total of 2%, the first positive growth since the scandal in 2015. Throughout the year, the company consistently beat investors’ earnings per share estimates.
Valeant [NYSE: BHC] plans to get back itself on track through a multi-pronged strategy:
(1) Papa wants to heavily invest in the company’s dermatology division Ortho Dermatologics, hoping to double its $600 million revenue from 2017 in just five years.
(2) Valeant [NYSE: BHC] has identified the “significant seven” products that it believes can make $1 billion in combined annual sales by 2023.
These include the drugs Duobrii and Jemdel for plaque psoriasis, as well as the Ultra contact lens and Lumify eye drops. However, in a recent setback, the FDA rejected Duobrii in June 2018, sending the company back to the drawing board.
(3) The company wants to continue paying down debt and making improvements to its operational efficiency.
What Are The Risks Of Buying Valeant Stock?
The biggest risk with buying Valeant shares is that the company’s glory days could be behind it. With a peak stock price of over $250, it will take a long time for Valeant stock price to climb back to this level.
Papa is trying to shake Valeant’s old reputation of price hikes and “too-cozy” relationships with specialty pharmacy.
This is a promising sign for the company, and investors may not yet have realized the impact of these reforms. However, for Valeant it may be a case of “too little, too late.”
In addition, the FDA’s rejection of Duobrii is a sign that at least one pillar of Valeant’s “significant seven” strategy has major structural problems.
To a large extent, Valeant’s fate is riding on the successful performances of these products. Any sign of weakness should be a serious concern for would-be investors; shares of Valeant dropped by 7% when news about the Duobrii rejection first broke.
Valeant Stock Forecast Summary
Valeant is an interesting stock for investors to consider: a once-hyped investment that has since fallen from glory and is now trying to climb back to the top. The biggest question is whether Valeant [NYSE: BHC] (a.k.a. Bausch Health) has changed more than its name.
During Papa’s decade-long tenure as CEO of Perrigo from 2006 to 2016, the value of Perrigo stock grew by more than 10 times.
There’s little doubt that Papa is the right person to lead this turnaround for Valeant; the more interesting question is whether the company he’s leading is capable of doing it.
We expect that Papa’s projections will come true, with small to moderate growth for Valeant in 2019. The company is an intriguing investment for those who are in it for the long term, although not those who are risk-averse or looking to make a quick profit.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.