Valeant CEO Addresses Investor Concerns In Letter; Will It Help The Stock Price?

• The CEO of Valeant Pharmaceuticals released a letter this week addressing the company’s falling share price.
• CEO J. Michael Pearson believes that market fears over Valeant’s inability to deliver growth in a potentially harsh regulatory environment  are overblown.
• Pearson argues that Valeant has less exposure to government drug price reimbursement than other major pharmaceutical companies.

After watching the stock's share price fall by more than 17 percent in five days, Valeant Pharmaceuticals International Inc VRX CEO J. Michael Pearson decided to take matters into his own hands on Monday by sending a letter to his employees assuring them that the company’s business model and fundamentals are sound. Democratic presidential frontrunner Hillary Clinton’s plan to rein in prescription drug prices has slammed the biotech sector hard in recent days, but Pearson assured his employees (and shareholders) that the company is in a strong position to continue to grow regardless of potential new drug price regulation.

Related Link: Don't Worry Investors, Hillary Can't Change Drug Pricing As President

Price Increases

According to Pearson, fears that new legislation could threaten Valeant’s ability to raise prices on its drugs and eliminate the company’s growth are unfounded. “Valeant is well-positioned for strong organic growth, even assuming little to no price increases,” he wrote.

In addition, Pearson points out the company projects that nearly a third (30 percent) of its 2016 business will come internationally, where the company has experienced very little price increase in the past. However, Valeant is still projecting strong growth overseas. “We expect continued high single-digit/low double-digit growth in our emerging markets and 3-5% growth in ex-U.S. developed markets going forward,” Pearson added.

Reimbursement

The other major concern that Pearson addressed in his letter is Valeant’s exposure to U.S. government drug price reimbursement, which some fear could be reduced or eliminated in the near future. According to Pearson, U.S. government reimbursements represent only about 15 percent of the company’s total revenue.

“I believe our exposure to government reimbursement is lower than any other major pharmaceutical company,” Pearson wrote.

Outlook

Pearson expects another quarter of “strong financial performance” from Valeant in Q3, but the letter seems to have done little to boost the slumping stock price. Valeant opened this week’s trading down about another 2 percent.

While it is uncommon for biotech CEOs to write letters addressing concerns over their business, it is not unprecedented. Back in March 2014, the CEO of NanoViricides Inc NNVC penned a letter which, among other things, addressed a “bear attack” on the company’s share price. In the month that followed, the company’s share price declined another 14.5 percent.

In March of this year, the CEO of NeoStem Inc NBS published a letter explaining all the reasons shareholders had to be excited about the stock. The stock fell 14.2 percent in the following month.

Back in January 2015, the CEO of StemCells Inc STEM released a similar shareholder letter addressing his excitement about the direction the company is headed. In the month that followed, shares declined by 2.6 percent and are now down more than 51 percent year-to-date.

Disclosure: the author holds no position in the stocks mentioned.