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Valeant is poised to disappoint investors again

Valeant Pharmaceutical's head office is seen, Tuesday, June 14, 2016 in Laval


Valeant seems to be better at boosting drug prices than its own stock price.

The embattled specialty pharma firm's shares have tumbled 28 per cent from a peak of more than $31 in August. That month, the company enjoyed a string of rare positive headlines, including a 2016 revenue forecast that surprised investors by holding steady instead of being cut for the umpteenth time.

Since then, Valeant's headlines have again turned bad, and its financial situation has not improved. Perhaps most tellingly, a Bloomberg Intelligence analysis published on Thursday finds a much-needed recovery in the company's prescription-drug business simply isn't happening.

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Set to report third-quarter earnings next week, Valeant is primed to do what it does best: disappoint.

Prescription volume for Valeant's eye drugs fell 6 per cent in the third quarter from the second quarter, according to the BI report. Volume for the core dermatology business fell 1 per cent sequentially in the third quarter. In its second-quarter results, Valeant reported dermatology revenue had tumbled to $208-million from $461-million a year earlier; the bleeding is apparently not over.

Valeant's gastrointestinal drugs grew by a meager 2 per cent sequentially in the third quarter, according to BI. Xifaxan, the flagship drug Valeant acquired in its $13.4-billion purchase of Salix, grew 2 per cent sequentially after two straight quarters of decline.

Valeant's earnings in the first two quarters of 2016 missed analyst expectations; meeting its full-year guidance will take a substantial second-half recovery. That doesn't seem particularly likely given these trends. Analyst consensus estimates for the year have already slipped below the midpoint of Valeant's guidance, suggesting many expect a cut or earnings disappointment is coming.

Another guidance cut may not terrify investors quite as much as it did before the company negotiated looser terms with creditors to put off the risk of default. But it certainly wouldn't be the evidence of recovery anyone's looking for, given the company's ongoing losses.

Even if default doesn't loom, Valeant's $31-billion in debt casts a long shadow. And the company's promises to sell off likely depreciating assets to raise cash have translated into little action.

Meanwhile, sentiment about Valeant and its business model hasn't improved. Since its previous earnings report, a criminal probe and a major shareholder lawsuit have arisen. The company has come under fire for under-the-radar price hikes and for failing to follow through on promised drug discounts.

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Its peers are still under scrutiny, too. Horizon Pharma, which has been a notorious price hiker in its own right, cut its 2016 guidance on Tuesday in part due to concessions made to payers. Mylan has been publicly savaged for price hikes on EpiPens.

Valeant keeps asking investors to believe the worst is over. But first it must prove it can at least keep its financial guidance intact for more than a few months.

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