Wall Street dropped a bomb on Valeant right before its Senate hearing

Timing is everything.

On Wednesday morning Wells Fargo analyst David Maris published a report pointing out that Valeant Pharmaceuticals has raised prices on 16 of its products so far this year.

On Wednesday afternoon, Valeant Pharmaceuticals’ CEO, a former interim CEO, and billionaire hedge fund manager and board member Bill Ackman will testify about the company’s drug pricing practices before the US Senate.

Last year, the company vowed to lower prices across the board and change its business model after coming under scrutiny for price hikes. It’s one of the four companies the Senate Ageing Committee has been investigating for price hikes across the drug industry since December. The House of Representatives is investigating the company for the same matter.

That government pressure, combined with accusations of malfeasance from a short seller, sent Valeant’s stock careening down. Together, these issues prompted the company to shut down a secret specialty pharmacy called Philidor that distributed its products, and change its pricing practices.

Not according to Maris.

Here’s a bit of his report:

Despite payer and government scrutiny over pricing, has already raised prices on 16 products in 2016 — many of which had seen previous large price increases last year. We believe that as these significant price increases annualize in 2016-2017, Valeant’s comps will become difficult and growth could slow dramatically. With lower pricing ability, Valeant will likely have to rely more on volume growth, and volume trends in two key areas — Derm [Dermatology] and GI [Gastrointestinal] – do not look good in our opinion.

Drugs Valeant hikes in 2016Wells FargoDrugs Valeant hiked in 2016

Valeant drugs saw a sales volume uptick beginning in January, but Maris thinks that was just a bunch of drugs that used to be distributed by Philidor, which were not tracked before, coming under the radar now that they’re sold through Walgreens.

Signs point to sales slowing down for the rest of the year, especially for drugs that used to be distributed by Philidor.

Valeant has told investors that it will not do acquisitions in 2016. Without that, Maris sees little prospect for growth.

More from the report:

We believe there is a significant risk that Valeant will not be able to meet its larger debt maturities, which means Valeant could have to sell assets to stave off creditors, restructure the debt with either equity or later maturities, or some combination of these. We note we believe all of these actions will likely result in lower EPS guidance, and as a result, we see the risk that Valeant will either suspend or lower its 2016 EPS guidance. So while some will point to a new CEO or a filed 10K as milestones, we remain concerned about the business trends and the options for the debt, neither of which look good for equity holders, in our view.

Valeant has not filed its annual report or first quarter earnings for 2016. It got permission to delay the filing from creditors earlier this month, and has until Friday to do it.

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