Valeant is making news
Ahead of its 3Q16 earnings on November 8, 2016, Valeant Pharmaceuticals (VRX) is making the news due to the possible sale of Salix and its eye surgery equipment business, a DOJ (Department of Justice) investigation, possible filing for charges against generic drug makers, and ongoing investigation for fraud against VRX’s former CEO Michael Pearson and ex-CFO Howard Schiller. In addition to that, former Sprout Pharmaceuticals investors have sued Valeant for overcharging and failing to commercialize Addyi, a female libido drug. The new accusation will result in increased legal expenses for Valeant. It seems that Valeant’s problems are never ending.
DOJ investigation of generic drug makers
On November 3, 2016, Valeant along with many other generic and specialty pharma drug companies plunged because of the DOJ’s investigation and the possibility that it could file charges by the end of 2016 against generic companies that might have colluded in regards to drug pricing. This news caused a significant fall for Mylan (MYL), Teva Pharmaceuticals (TEVA), and Endo International (ENDP). Valeant was already being investigated by the DOJ for drug pricing.
On November 3, Endo plunged 19%, while Teva fell 9.6%. Mylan’s share price fell 6.9%, and Valeant couldn’t hold the rise following the positive news of possible Salix sales and fell 8.6% on November 3. Although Valeant holds significant upside potential, there could be significant volatility associated with the stock.
With the realized sale of Salix and eye surgery equipment business at $10 billion and $2.5 billion, Valeant’s valuation should improve given a long-term scenario. If you want diversified exposure to risky Valeant, you can invest in the VanEck Vectors Pharmaceutical ETF (PPH). PPH holds 2.6% of its assets in Valeant.
In the next article, we’ll discuss DOJ’s investigation of Mylan, Teva, and Endo in detail.