Shares of Valeant Pharmaceuticals (VRX) are sliding after JPMorgan analyst Chris Schott downgraded the stock to Underweight, a sell-equivalent rating, saying that while fundamentals have improved, but valuations looked stretched and 2018 estimates remain too high.

SELL VALEANT: In a research note to investors, JPMorgan’s Schott downgraded Valeant Pharmaceutical to Underweight from Neutral, while raising his price target for the shares to $12 from $10. The analyst acknowledged that the company has made progress stabilizing its core operations and addressing near-term debt maturities, but it still faces significant patent erosion over time that will result in a step down in 2018 EBITDA and muted recovery off of these levels. Additionally, Schott believes Valeant’s core franchise recovery remains a work in progress, while the outlook for the new product launches remains fairly mixed. Of note, the analyst sees a challenging commercial path for Valeant’s IL-17 Siliq given competitive offering in the space, and is more constructive on the IDP-118 topical derm product with a potential 2018 launch. Overall, Schott argued that Valeant’s valuation is stretched at current levels and 2018/2019 estimates appear too high.

PRICE ACTION: In afternoon trading, shares of Valeant dropped 13% to $19.17.