Valeant Pharmaceuticals Intl Inc. (TSX:VRX)(NYSE:VRX) shares plunged once again on Thursday after Hillary Clinton called out the company at a campaign appearance. Here is what she had to say:
This is a letter from someone who’s here. And she gave me this letter. She has to take a brand name drug. She’s been taking it since the early 1980s. At that time, back in the 1980s, for the same drug, it cost approximately $180 for 10 shots. The latest refill she received from her pharmacy was $14,729.99 for the same 10 vials. And the company is one of these companies that is absolutely gouging American consumers and patients. It’s called Valeant Pharmaceuticals. I’m going after them. We are going to stop this. This is predatory pricing. It is unjustified. It is wrong. And we’re going to make sure it is stopped.
At the end of these remarks, the Iowan crowd gave her a standing ovation, which is a fair reflection of how Americans feel about the issue.
So what exactly does this mean for Valeant?
The stars are aligned
Normally, it is very difficult to get legislation passed in Washington. But this issue has strong bipartisan support. To illustrate, in a recent survey by the Kaiser Family Foundation, 83% of Americans favour the idea of letting Medicare negotiate for lower drug prices, including 74% of Republicans.
With that kind of bipartisan support, there’s a chance of legislation even if a Republican gets elected. For what it’s worth, Donald Trump has said that Medicare should negotiate for discounted prices.
Alarmingly for Valeant, the company can’t even get any support from PhRMA, the pharmaceutical industry’s main lobby group. Back in October PhRMA posted an article on its website entitled “What makes Valeant different than innovative biopharmaceutical companies?” PhRMA noted in the article how Valeant spent only 3% of revenue on research and development in 2014 and compared the company to the much-maligned Turing Pharmaceuticals.
Is the stock still cheap enough?
There are a lot of people who still think Valeant is worth owning. To illustrate, 13 analysts rate the stock “Strong Buy” or “Buy” while only one rates the stock “Underperform,” according to Yahoo Finance. And it’s easy to see why–the company trades at a massive discount to its peers.
But let’s not forget that Valeant is the subject of a number of investigations, and we still haven’t gotten to the bottom of its relationship with Philidor. Making matters worse, the company has US$30 billion in debt, so there isn’t much room for error. In my opinion, the stock is simply too risky and there are better options for your portfolio.