Valeant Pharmaceuticals (VRX): More Bad News Hits Hard

Valeant Pharmaceuticals Intl Inc (NYSE: VRX)

Valeant Pharmaceuticals has been having a rough time in the market since Thursday of last week as federal investigators made the decision to look into the company. Since then, VRX produced a stronger than expected earnings report, but it wasn’t enough to excite investors. Now, an analyst has made the decision to reduce the stock’s price target, pushing VRX even lower. Today, we’ll talk about the federal investigation, the new analyst opinion on the stock, and what we can expect to see moving forward.

Valeant Pharmaceuticals Investigated By Feds

As of late, biotech companies as a whole have been dealing with a big issue. After Hillary Clinton made comments with regard to “price gouging” in medications, many mainstream biotechnology companies have come under fire. The most recent of these has been VRX. Last week, the company announced that it had received subpoenas from two United States Attorney’s Offices, one in Massachusetts and one in the Southern District of New York.

Federal investigators want to know more information with regard to how the company is pricing its treatments. Specifically, those treatments being investigated include Isuprel and Nitropress. Through the subpoenas, investigators have asked VRX for details with regard to the pricing information the company has provided to the Centers for Medicare and Medicaid Services, how the company distributes its products, and the financial support VRX has given to patients in need.

Throughout the process J. Michael Pearson, Valeant Pharmaceuticals’ CEO, has maintained that the company has not done anything wrong and that he will work in tandem with federal investigators to cooperate with their needs. Here’s what he had to say in a recent statement…

We remain committed to assisting eligible patients who need our products, and we will be working with the appropriate groups to submit the requested documents and plan to cooperate with inquiries.”

VRX Downgraded Price Target Reduced By BMO Capital

BMO Capital announced early this morning that it has made the decision to decrease the price target for VRX. The new price target is $265, declining from $273 per share. While the firm did decrease the price target, they also announced that they still maintain an “outperform” rating on the stock. So, why was the price target decreased?

BMO Capital explained that while VRX beat third quarter earnings expectations on Monday, the company’s financial results show concerns with regard to its legacy business. Unfortunately, ex-Salix underperformed in the quarter according to BMO capital and the new price target on the stock “reflects this underperformance”. BMO also noted that the Salix business will likely be a crucial driver of growth in 2016. Also, the firm believes that research and development strategies at Valeant are overdone at the moment. All in all, the firm remains optimistic with regard to future growth, but has a couple of key concerns.

How Valeant Reacted In The Market

Unfortunately, VRX is continuing to spiral downward, as we’ve seen since word of the federal investigation into the company’s pricing strategies. Currently (8:03), VRX is trading at $99.97 after a decline of 31.87% so far today.

What We Can Expect To See Moving Forward

As mentioned in previous articles, I do believe that VRX is a great investment. However, it’s not a great investment right now. Unfortunately, with the federal investigation in place, there are several factors that are up in the air. With that said, I maintain my position that in the short term, we are going to continue to see declines or flat movement on the stock. The reality is that right now, gains are far from likely. Nonetheless, at some point, the federal investigation will be complete, and in my opinion, it’s likely to show that VRX has done nothing wrong. This should prove to be a positive catalyst for the stock, revamping the upward movement we would be seeing had the investigation not happened in the first place.

What Do You Think?

Where do you think VRX is headed and why? Let us know in the comments below!

[Image Courtesy of Benzinga]

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