What happened

Valeant Pharmaceuticals (NYSE:BHC), a specialty pharmaceutical company, saw its shares sink by 11.8% last month, according to S&P Global Market Intelligence.

What went wrong? The drugmaker's shares retreated largely in response to its weaker-than-expected fourth-quarter and full-year earnings release that hit the wires toward the end of the month. 

Man with a shocked look on his face, holding his forehead in front of a downward sloping chart.

Image source: Getty Images.

So what

The big-ticket item is that Valeant's annual revenue dropped by a noteworthy 10% year over year, thanks to a spate of divestitures such as Dendreon, iNova Pharmaceuticals, and Obagi Medical Products over the past year.

Complicating matters further, these divestitures, along with new generic competition for key products, are expected to result in another 5% to 7% decline in product sales this year. That's not good news for a company attempting to pay down a whopping $25.4 billion in debt and invest in the development of new growth products at the same time. 

Now what

Valeant's saving grace may be its relatively new plaque psoriasis drug, Siliq, that launched in mid-2017. After all, some analysts estimate that the drug will reach peak sales of a healthy $750 million within the next five years. That being said, the plaque psoriasis drug market is already crowded, and new, even more potent competitors are close to joining the party. 

Another key concern is that Siliq seems to be at a clear-cut competitive disadvantage because of its black-box warning label. The net result is that bearish analysts have suggested that Siliq might even struggle to reach $250 million in sales at peak. 

If that turns out to be the case, Valeant's turnaround story could very well come unglued. The company does have other late-stage clinical assets that could pick up the slack if Siliq fails to gain traction. But Siliq has loomed large in the company's plans to right the ship via organic growth. That's why it might be a good idea to keep a particularly close eye on this drug's commercial trajectory over the next few quarters if you plan on investing in this comeback story.   

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.