Why Valeant Pharmaceuticals Tumbled 10.9% Today

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What happened

After Goldman Sachs tossed cold water on the company's market-beating performance by initiating a sell recommendation today, shares in Valeant Pharmaceuticals (NYSE: VRX) lost 10.9% of their value today.

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So what

Last year was a successful one for Joseph Papa, Valeant's CEO. Papa inherited a company struggling to overcome a host of challenges stemming from a relationship with its specialty distributor that proved to be all too close for comfort and a mountainous debt load his predecessor amassed.

As part of his plan to get the company back on track, Papa has reduced Valeant's debt by $6 billion, and has done so ahead of schedule, by jettisoning non-core assets. His management team also appears to have made some headway with payers, which has stabilized sales at the company's key Bausch & Lomb and Salix businesses.

Yet according to Goldman Sachs analysts, the company still has a lot of work to do. Today, the investment bank initiated coverage on Valeant with a sell rating, saying it still has concerns about its balance sheet, outstanding lawsuits, and ability to overcome competition threatening key products.

Now what

Valeant Pharmaceuticals' shares rallied 43% in 2017 because of Papa's execution on his turnaround plan, but a lot of that execution stemmed from one-time events, including asset sales, and that may mean that the company's hardest work is still ahead of it.

Growing demand for its products could make the next stage of Valeant's transformation easier, but historically, Valeant's under-invested in its R&D efforts, and that approach has limited its ability to launch new drugs that can kick-start sales.

Overall, Valeant's declining debt and stabilizing revenue takes some pressure off the company, but the benefit from its efforts so far may already be priced into its shares.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Valeant Pharmaceuticals. The Motley Fool has a disclosure policy.

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