Valeant Pharmaceuticals Intl Inc (NYSE: VRX)
Valeant Pharmaceuticals has had an incredibly rough time in the market as of late, and for good reason. Late last year, it was uncovered that the company was lying to its investors, making financial data seem better than it actually was. Since then, we’ve seen quite a few changes at the company, but investors are still uncertain with regard to whether or not they should take part in VRX. Nonetheless, I believe that the company will recover, and that it will start to happen relatively soon. Today, we’ll talk about the scandal that got the company into this mess, what we’ve seen since, and what we can expect to see from the stock moving forward.
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The Scandal That Sent VRX On A Downward Spiral
It all started late last year. At the time, Valeant Pharmaceuticals was the subject of several independent and government investigations with regard to their pricing practices. One of the analyst firms that was conducting an independent investigation was Citron, and they found something far worse that poor pricing practices. Citron uncovered the fact that VRX was using its relationship with its biggest customer to mislead investors.
As a result, Citron quickly published a report, informing investors of what they’ve uncovered. In their report, Citron outlined the issue that they found and even went as far as to call VRX the Enron of the pharmaceutical industry. As a result, Valeant Pharmaceuticals’ stock started to tank. Over the next few months, the value of the stock would fall by more than 70%!
Changes We’ve Seen Since
Any time a big scandal like this is uncovered, we can expect to see big changes at the company that is in the epicenter of the issues. When it comes to VRX, that’s no different. We’ve seen several changes to date. Here are the most important:
- CEO Changes – One of the most important changes that the company has made since the scandal is a change to its CEO. After all, when something like this happens, the blame for the issue ultimately lies with the CEO. So, recently, J. Michael Pearson resigned from his position as the CEO of VRX, leaving a well respected member of the pharmaceutical industry, Joseph Papa, in his place.
- Philidor Agreement Cancellation – As mentioned above, Valeant Pharmaceuticals used its relationship with Philidor in order to mislead its investors. So naturally, investors pushed for a cancellation of the agreement to ensure that they were never misled again – at least in that way. As a result of the investor pressure, the agreement was almost immediately canceled after the scandal became public knowledge.
- Walgreens – The fact that VRX cut ties with Philidor was a good and bad thing. On the good side, it appeased investors, as the company won’t be able to use the relationship to mislead them anymore. On the bad side, Philidor was the company’s largest customer. Fortunately, to make up for the loss of sales, Valeant signed an agreement with Walgreens shortly after canceling the agreement with Philidor.
- Changes To The Board – On top of the changes above, VRX has also made a couple of big changes to the board. One of the most important changes was adding Activist Investor Bill Ackman to its board of directors.
What We Can Expect From The Stock Moving Forward
While I know that this will go against the opinions of many, I believe that VRX is going to climb moving forward. Don’t get me wrong, the Philidor scandal was incredibly bad for the company, and it will take some time for the company to win back investor trust. However, after the CEO change, board changes, Philidor cancellation, and Walgreens agreement, it seems to me that Valeant Pharmaceuticals is on a great path to recovery. With the stock trading at nearly 70% below its prime, the company is now tremendously undervalued and has plenty of room to climb. All in all, I’m expecting to see gains moving forward.
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What Do You Think?
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