Valeant Pharmaceuticals Intl Inc (NYSE: VRX)
Valeant Pharmaceuticals has had an incredibly rough time in the market for some time now, and for good reason. The company was the centerpiece in a report from Citron that outline reasons that the company was the Enron of the pharmaceutical industry. While I didn’t want to believe it at first, the proof was in the pudding, Valeant had done wrong. Nonetheless, at this point, I’m back to a bullish tone on the stock. At the end of the day, I believe that VRX will climb from here. Today, we’ll talk about why!
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The Headache That Led To The Mess For VRX
Before we get into why I believe Valeant is going to grow from here, it’s important that you understand what led to the declines we’ve seen on the stock as of late. Late last year, Citron dug into the company, and the report published as a result was overwhelmingly negative. As mentioned above, Citron actually called VRX the Enron of the pharmaceutical industry. However, they had a good reason to throw around such devastating words.
In their research, Citron found that some of the data between VRX and it’s biggest customer, Philidor, simply didn’t add up. As a result, it became clear that Valeant was using its relationship with Philidor as a way to make the company look much stronger than it actually was. Soon, investors pushed for the cancellation of the agreement between VRX and Philidor. Of course, they got what they wanted, but there were side effects. You see, Philidor, being the company’s largest customer, accounted for the vast majority of sales of Valeant treatments. So, when Philidor was out of the arrangement, VRX suddenly didn’t look so strong. Soon, Valeant fell dramatically in value. In fact, since the scandal, the stock has fallen from more than $100 per share to around $30 per share!
Why I Believe Valeant Stock Will Grow From Here
While VRX has done the wrong thing and has fallen dramatically as a result, I believe that the long term picture from here is actually looking incredibly positive. Here’s why:
- Walgreens – Shortly after canceling its agreement with Philidor, VRX signed an agreement with Walgreens. As a result, Valeant products are now available through one of the larget pharmacies in the world. Now, the relationship didn’t pick up sales entirely, but it has made a big difference already.
- Support Should Be Coming – Valeant has been falling in the market for quite some time. In fact, the stock has given up more than 70% of its value since the scandal. At this point, VRX is trading well below a fair market valuation. Sure, it’s going to take time to win the trust of investors back, but at the moment, the price of the stock is so discounted, it’s incredibly hard to resist.
- Management Changes – After the VRX scandal, something had to be done with management, and that’s exactly what we’ve seen. Recently, two highly respected activist investors have been added to the board of directors. On top of that, Joseph Papa recently took on the role of CEO for the company. It’s my belief that due to these changes, management is incredibly strong, and that will lead to growth.
The Bottom Line
The bottom line here is that Valeant did the wrong thing. There’s absolutely no doubt about it. However, the company has paid a hefty price for their mistakes and has made big changes to ensure that those mistakes don’t happen again. All in all, it seems as though VRX is on track for growth at this point, and I would personally bet on that assessment!
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What Do You Think?
Where do you think VRX is headed moving forward and why? Let us know your opinion in the comments below!
[Image Courtesy of Wikipedia]