Valeant Pharmaceuticals Intl Inc (NYSE: VRX)
Valeant Pharmaceuticals has been an incredibly interesting stock to follow for nearly a year now. Late last year, news surfaced that the company had misled its investors using a relationship with its biggest customer. Since then, the stock has declined dramatically. However, the company has made several changes to improve its business and appease investors. Now, there’s a big conversation surrounding whether or not the stock will recover. Today, we’ll talk about the scandal that led to the declines, what we’ve seen from the company since, and why I believe that VRX will likely soar in the long run.
The Scandal That Started It All
For quite some time, VRX had a relationship with a pharmacy known as Philidor. This pharmacy just so happened to be the company’s largest customer, generating massive amounts of sales. However, the actual sales generated weren’t enough for Valeant. Instead of simply reporting the numbers as is, the company padded the numbers, misleading investors to believe that more money was being made than the actual sales would have allowed for.
This could have stayed under wraps for quite some time. However, late last year, there were several questions surrounding VRX and their pricing practices. As a result, the government launched an investigation into the company. Of course, when government investigations are going on, analysts want to investigate as well. This is where Citron comes in.
An analyst firm known as Citron decided to launch their own independent investigation into VRX. During their investigation, they found the misleading statements made by Valeant, and the relationship with Philidor that allowed the scandal to happen. Soon, Citron published a report, making the scandal public and calling Valeant the Enron of the pharmaceutical industry.
VRX Has Made Big Changes Since The Scandal
Since the scandal, VRX has been forced to make several changes to the way it does things. After all, the old way doesn’t work if it allows for the misleading of investors. So, the changes started with a cancellation of he agreement with Philidor, the agreement that made the scandal possible.
Shortly after announcing that the company had cut ties with Philidor, Valeant announced something new. The company would be signing an agreement with Walgreens under which Walgreens would start to carry their products. This would help with the amount of sales lost due to the Philidor cancellation.
Finally, VRX has also made several changes to management. First and foremost, the company replaced the CEO, J. Michael Pearson, with a well respected member of the Pharmaceuticals industry, Joseph Papa. On top of that, the company has also added two members to its Board of Directors – one being Activist Investor Bill Ackman.
Why I Believe The Stock Will Climb From Here
There’s no denying the fact that Valeant Pharmaceuticals was in the wrong when it comes to the Philidor scandal. However, that doesn’t mean that the company is dead in the water. VRX has fallen by far more than 70% at this point, but has not lost nearly that much in revenue nor earnings. While it may take some time to regain investor trust, with the changes the company has made, things are turning positive in a big way. So, in the long run, buying now will likely lead to big gains.
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]