Valeant Pharmaceuticals Intl Inc (NYSE: VRX)
Valeant Pharmaceuticals has had a tough time in the market. Now, I understand if you’re skeptical about the stock. Nonetheless, if you’re too scared to buy the stock, chances are that you’re going to miss a great opportunity! Don’t forget the great Warren Buffet’s model – buy when fears are high, sell when greed is in the lead. Today, we’ll talk about why investor fear is high surrounding VRX, why the validity of these fears has been lost, and what we can expect to see from the stock moving forward.
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Why Fear Is High Surrounding VRX
The problems for Valeant Pharmaceuticals started late last year, and I’ll be the first to admit the problem was big. You see, last year, the pricing practices at the company were called into question. As a result, it found itself as the center of several investigations. While government agencies were looking into the company, investment firms were also performing their own independent investigations.
One of the firms investigating VRX, which became the center of the story, is Citron. During Citron’s investigation, they decided to dig deeper than other investigations. Unfortunately, when they dug deep enough, they found something that was overwhelmingly concerning.
Citron found that VRX had been using its relationship with its biggest customer to mislead investors. Using its relationship with Philidor, the company reported more sales than it was actually generating. Of course, this made investors happy, sending the stock up – that is, until the scandal was uncovered.
Citron Uncovered The Scandal Causing The Stock To Tank
When Citron completed their investigation of Valeant Pharmaceuticals, like any other investigation, they published a report. Unfortunately, the report was overwhelmingly negative. Not only did Citron uncover the Philidor scandal, they went as far as calling VRX the Enron of the pharmaceutical industry. Then again, I can’t blame them, at the time, the name was deserved!
As you can imagine, when Citron uncovered the scandal, we saw massive downward movement on the stock. After all, by this point, all we knew was that investors had been misled. We didn’t know the extent to which the misleading statements would change things. So, fear ran deep and investors did everything they could to offload VRX. This led to declines of more than 70% in the value of the stock.
We’ve Seen Some Big Changes
Since the scandal was uncovered late last year, we’ve seen very big changes at Valeant Pharmaceuticals. Here’s what we’ve seen in order of importance:
- CEO Change – Anytime something like this happens at a company, there may be several people to blame. However, the brunt of the blame comes back on the person running the company, the CEO. As a result, early this year, J. Michael Pearson, the CEO at the time of the scandal, stepped down. From there, Joseph Papa took his place. This was great news, as Papa is an incredibly well respected member of the pharmaceuticals industry.
- Philidor Cancellation – Knowing that the relationship between VRX and Philidor was what allowed the scandal to happen, investors wanted to see the relationship come to an end. So naturally, shortly after the scandal was uncovered , it was announced that the agreement was cancelled.
- Board Changes – VRX didn’t stop at CEO and agreement changes – the company has also made key changes to the board as well. One of the most important of these changes was the addition of Activist Investor Bill Ackman to the Board of Directors.
- Walgreens – Finally, Valeant Pharmaceuticals signed an agreement with Walgreens early this year. Under the agreement, Walgreens is now selling VRX branded prescriptions.
The Bottom Line
The bottom line here is relatively simple. Valeant Pharmaceuticals was in the wrong, and they deserved the massive declines they saw as a result. However, since the scandal, the company has transformed into something new. Now, VRX is run by Joseph Papa (a leader in the industry), they have a stronger board of directors, and they’re making moves to increase sales. While I understand fears associated with the scandal, I don’t see another scandal happening. What I do see is a great company that ran into a brick wall. While it may have taken a while, at this point, they’ve torn down the wall and are moving forward on the path to growth. All in all, I’m expecting gains in the stock moving forward.
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What Do You Think?
Where do you think VRX is headed and why? Join the discussion at TalkTRENDZ from CNA Finance!
[Image Courtesy of Pixabay]