Valeant Pharmaceuticals Intl Inc (VRX): Don’t Go Bottom-Fishing in a Polluted Lake

Just when you think things can’t get any worse for Valeant Pharmaceuticals Intl Inc (VRX), they get worse.

Valeant Pharmaceuticals Intl Inc (VRX): Don't Go Bottom-Fishing in a Polluted LakeAlready down 70% from its highest close in August as of the end of last week, VRX shares took another step in the wrong direction this week, bringing the six-month rout to a whopping 75% and pulling Valeant stock into new 52-week low territory.

The reason? You name it. Once the bad-news spigot was turned on, any attempt to shut it off only made matters worse. New bearish catalysts materialized at a jaw-dropping pace all the way through Monday’s report that the SEC was officially scrutinizing the company. It’s been nothing less than miserable for shareholders.

And yet, while nobody wants to catch a falling knife, even the most vehement of Valeant naysayers would have to agree there’s a limit to how much bad news one company can generate. Valeant Pharmaceuticals may be at that point. If so, is VRX a buy here, in the midst of all this carnage?

VRX: Remember This?

It’s become so routine to see bad news regarding Valeant that it’s hard to recall a time when it wasn’t getting blasted. But the company and the stock have only been in dire straits since August of last year. Up until that point, Valeant stock was a habitual winner, gaining 83% during the first seven months of 2015 alone.

But once the tide turned bearish, it turned ugly in a big way. Here’s the stunning timelines of events/chain reaction, as a refresher:

  • Aug. 6, 2015: VRX shares plunge 5% after it ends up on the losing end of what became a bidding war to acquire some of the biopharma market’s better targets.
  • Aug. 20, 2015: Valeant Pharmaceuticals acquired maker of “female Viagra” Sprout, adding to a list of specialty drugs it could buy and then charge a premium for. The stock fell 6% that day alone, and as a result was down 12% from its August peak. It would fall another 9% over the course of the next two days, as the market was finally starting to become concerned the company was spending too generously on deals and getting too little for its dollars.
  • Sept. 21 through Sept. 29, 2015: The proverbial “big kahuna” was when Presidential hopeful Hillary Clinton tweeted:
  • Oct. 16 through Oct. 21, 2015: Valeant fell another 32% during this time after Citron Research called it the Enron of the pharmaceutical world, calling into question the accuracy of its sales numbers as suggested by one of its pharmacy distribution partners. VRX ended this span down 58% from its peak.

Between Oct. 22 and mid-November, Valeant stock would find itself on the receiving end of a few more downgrades and a lot more recycled bullish chatter.

After that, however, there was no blood left to give. We even say VRX shares perk up a little bit through mid-December. Once word got out in late December that CEO Michael Pearson was taking some medical leave time to deal with pneumonia, however, the budding rally effort faded and never returned.

But at least the stock wasn’t getting crushed anymore …

… that is, until this week, when the world unloaded on Valeant again. Why? CEO Michael Pearson returned from his leave, after a few people posed the idea that the company would be better off without him. Then the company postponed its earnings release, simultaneously rescinded its 2016 guidance and disclosed the SEC was investigating the company.

And those are just the highlights (or would it be lowlights?) of a horrifying six-month stretch for Valeant Pharmaceuticals.

Bottom Line for VRX

Yeah, but is VRX a buy in spite of the spate of bad news? Or is VRX a buy because the spate of bad news has made Valeant shares dirt cheap? (They currently trade at a forward price-earnings of only 4.5.)

The premise of buying what nobody else wants isn’t a bad one, and could arguably apply to Valeant at this time. After all, the company still has a portfolio of marketable drugs it’s going to be able to sell at some sort of respectable price for the foreseeable future. Even if regulators reel in its ability to charge unreasonable prices, its IP, portfolio and pipeline alone are worth something.

But no, Valeant Pharmaceuticals isn’t a buy right now for most investors simply because there are still more questions than answers.

That’s not to say VRX hasn’t hit bottom; but not knowing what the SEC investigation will unearth, what presidential frontrunner Hillary Clinton might do to the drug market if elected and not knowing if the disruption of a new CEO is in the cards (just to name a few unknowns) makes it impossible to handicap Valeant right now.

There are other, clearer investment opportunities out there for the average investor, despite the projected P/E (which could rapidly change for the worst without warning, by the way).

Even knowing there’s something worth owning buried in the mess, VRX is best left to the speculators.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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