Shares of Valeant Pharmaceuticals (VRX) were halted in pre-market trading on Monday for pending news. Once shares opened they soared to a high of $31.59 per share and have since retreated. Shares of Valeant are now trading up about 8%. The news: company CEO Michael Pearson would resign from the company. This isn’t an immediate departure because he will stay on the CEO role until a replacement can be found to fill his spot.
Another item in today’s VRX news was the announcement that Bill Ackman has joined the board of directors of Valeant. This follows Stephen Fraidin’s, appointment to Valeant’s board (Fraidin is vice president of Ackman’s hedge fund Pershing Square). Valeant has been a huge disaster lately with multiple problems, including: Late SEC filing for earnings, SEC investigation on drug pricing, pressure from Capitol Hill on increased pricing for drugs, Philidor problem, and finally $31 billion of debt.
In terms of the late financials Valeant now states that it won’t be able to make an SEC filing until April 29 at the latest. This leaves investors panicking and worried about the future prospects of the company. The company had also announced that 2014 revenue that was tied to Philidor should not have been recognized. This is because Valeant was including delivery of product as a sale, instead of when the product was actually sold.
This helped inflate Valeant’s earnings at that time. Shares of Valeant have been down over 87% the last six months, and there is no telling how much more shares could fall. Ackman entering the board is only preventing the inevitable, because unless earnings can post a turnaround his actions will be futile. Maybe Ackman is just trying to save his investment in Valeant. After all, Ackman owns at least 9% equity in the company. It would make logical sense for him to come in and try to save his investment as he stands to lose billions of dollars.
Based off of all these negative events and other forthcoming negative events such as probable SEC action it is a good idea to avoid trading this name. Unless all these problems are resolved in a timely manner it will put further pressure on the share price.
