There are no two ways about it: Embattled drug company Valeant Pharmaceuticals (NYSE:VRX) had a miserable 2016, ending the year down by 86%. Even worse, between the summer of 2015 and the end of 2016, Valeant’s share price had fallen by about 94%. Yuck!
Here’s what took Valeant from megacap to “megawreck”
Valeant has been dealing with a trio of serious problems. To begin with, it has a mountain of debt owing to its aggressive acquisition strategy over the past couple of years. Valeant ended the third quarter with $30.4 billion in debt and, more importantly, had an EBITDA-to-interest coverage ratio that was well below three, which is worryingly low. On two separate occasions last year Valeant wound up renegotiating the terms of its debt with secured lenders, accepting fees and higher interest rates in the process. This debt acts like a concrete block around Valeant’s metaphorical ankles.
