Bill Ackman's nightmare stock can do no right (VRX)

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Valeant Pharmaceuticals beat earnings expectations, but the Street is not buying this story.

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(Markets Insider)
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Normally, when a stock beats earnings, Wall Street does a golf clap and the stock goes up — even slightly.

Not so with Valeant Pharmaceuticals on Tuesday. The company reported adjusted earnings of $1.26 per share that beat Wall Street's expectations of $1.24 a share.

Yet the stock fell immediately upon the announcement of this earnings beat, dipping around 6% in premarket trading. Wall Street, in a rare move, is being forced to look beyond headline numbers and is digging into one of the ugliest business stories since the financial crisis. It's now down around 10%.

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(Markets Insider)

Keeping the faith

In the summer of 2015, Valeant's stock was soaring around $267 and had the full faith and support of one of Wall Street's titans, the hedge fund billionaire Bill Ackman.

In a few short months, though, accusations of accounting malfeasance and scrutiny from the federal government of its drug pricing practices virtually destroyed the company. Its stock is now hovering around $16.

2016 was a roller coaster of more federal investigations, a new CEO, congressional hearings, and nationwide anger over Valeant's drug-price hikes. All the while, the company was still holding $30 billion in debt and a product line that had expanded through acquisitions it no longer had the cash to continue.

Ackman, however, kept his faith in the company and encouraged Wall Street to do the same.

But it doesn't seem to be working. Quarter after quarter, executives said they were turning the corner to a "new Valeant." Quarter after quarter, the "new Valeant" was pushed back later and later. Now, based on the company's most recent call, it seems it won't arrive until around mid-2018.

2017, they say, will be treacherous.

Losing the faith

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(Valeant)

Key goals remain unmet. For example, the company is committed to raising $5 billion in cash to pay down debt and continue operations. So far, it's in talks to sell two assets for a total of $2.1 billion. It's still looking for assets to sell that wouldn't cut too deeply into the company's product line and profitability.

Meanwhile, several of Valeant's drugs will lose their exclusivity this year, and the company estimates that will create a growth drag of about $785 million on revenue.

"The realities of our capital structure force us to invest less in R&D," Valeant executives said on the call.

That is why the company has found some "hidden gems" — old drugs that it can relaunch for extra revenue. This should raise a red flag for anyone watching the debate about drug pricing and sales. Officials are angry about companies finding old drugs and jacking up the prices, or aggressively pushing drugs with cheaper generic competitors. Valeant has done this before, and the feds are watching them for it.

Executives also said they planned to relaunch Addyi, a sex-drive-enhancing drug for women that, frankly, hasn't proved to work very well.

So the stock is down. People aren't buying this recovery plan. And it seems Wall Street is losing the faith.

Irina Koffler, an analyst at Mizuho and former Valeant bull, has a price target of $9 on the stock now. Her sum of the parts, or SOTP, valuation of the business puts it at $16 a share. In August, her SOTP generated a $25 stock price.

And in November 2015, right after Valeant started bleeding, Koffler said a fire-sale would produce a stock price of $100 a share.

Life comes at you fast.