Valeant Pharmaceuticals Intl Inc (NYSE: VRX)
Valeant Pharmaceuticals has been the center of one of the most intense debates in the biotechnology industry to date. After the company’s scandal with Philidor became public knowledge, some investors started to throw around the word bankruptcy while others said wait till it hits bottom and buy. Well, at this point, it seems like it’s buying time! Today, we’ll talk about the scandal that led to the debate, what we’ve seen since then, and what we can expect to see from VRX moving forward.
Trade smarter and make more money with Tradespoon!
VRX And The Scandal That Wiped Out 70% Of Its Value!
While the scandal started some time ago, it wasn’t until late last year that it came to light. At the time, Valeant Pharmaceuticals was under investigation with regard to pricing practices. So, the spotlight was on the company and analysts were all over it. One of the firms looking into the company was Citron, and they found something that no one ever would have expected. Unfortunately, VRX had been lying to its investors!
Citron published a report following their investigation, and it was a heavy hitting one. In fact, Citron even went as far as to call VRX the Enron of the pharmaceutical industry. Essentially, the company had been using its relationship with Philidor to pad the numbers and make it look like they were doing better than they actually were.
This led to a firestorm of bad press. While they say that all press is good press, that wasn’t the case for Valeant. In fact, as soon as the storm of news started to flood the internet VRX dropped like a brick from the Empire State Building; giving up more than 70% of its value of the series of just a few months!
We’ve Seen Big Changes Since The Scandal
When the scandal was uncovered, I can only imagine what was going on at Valeant Pharmaceuticals. There had to be paper flying everywhere as the company looked for a way to recover, and do it quickly! Naturally, we’ve seen quite a few changes since. Here are the most important of these change:
- CEO Change – In my opinion, the most important news that we have received from VRX since the scandal was the fact that J. Michael Pearson made the decision to step down from his post as CEO of the company. After all, when big mistakes like this are made, 9 times out of 10, the CEO knew about it, and that 1 time out of 10, he should have! Consequently, Pearson has resigned and Joseph Papa, a well respected member of the pharmaceutical community, has taken control.
- Cancellation Of Philidor Agreement – As we learned, Valeant Pharmaceuticals used its relationship with Philidor in order to deceive investors with regard to their performance. As a result, investors demanded the cancellation of the agreement between Valeant and Philidor. Of course, this one was expected; the agreement was cancelled shortly after the scandal was announced.
- Board Changes – Obviously, the VRX Board of Directors needed more oversight, and someone needed to step in to protect investors. As a result, activist investor Bill Ackman was added to the company’s board. Ackman is arguably one of the most active activist investors and knows the pharmaceutical industry incredibly well. His addition to the board is definitely a positive move.
- Walgreens – When VRX canceled its agreement with Philidor, it turned out to be a double-edged sword. The reality is that Philidor was the biggest customer Valeant had. As a result of the cancellation, sales would shrink. However, shortly after announcing the cancellation of the agreement between VRX and Philidor, the company announced that it had entered into an agreement with Walgreens. As one of the world’s largest pharmacies, Walgreens could definitely help to solve the sales problems. While it wouldn’t make up for declining sales completely, it did make a big improvement.
What We Can Expect To See From VRX Moving Forward
Moving forward, I have an overwhelmingly bullish opinion of what we can expect to see from Valeant Pharmaceuticals. While the company did veer down the wrong path in a big way, I’m incredibly impressed with how things were handled and, perhaps more importantly, the speed at which things were handled. In my opinion, through the scandal, we’ve seen how quickly a pharmaceutical company can bounce back. After a loss of 70% on the stock price, VRX is now trading at an incredible discount. Now, I wouldn’t say it’s a $100 stock by any means, but I do see it climbing to around $69 per share over the next year or so. All in all, things are starting to look up for VRX.
Don’t waste your time! Click here to find winning trades in minutes!
What Do You Think?
Where do you think VRX is headed and why? Let us know your opinion in the comments below!