Valeant Pharmaceuticals Intl Inc (NYSE:VRX) almost got to the point where it was a normal company again. It almost looked like the dust was finally starting to settle from a long delay in filing its quarterly results earlier this year (and a related restatement of some older filings) and the subsequent replacement if its CEO. Likewise, VRX stock almost started trading like a normal equity again.

“Almost” didn’t last long.

In late October, it was announced that ex-CEO Michael Pearson and ex-CFO Howard Schiller were being investigated for possible criminal activity while they were employed by Valeant. (Accounting fraud, essentially).

Then, just this past week, former Sprout shareholders — the biopharma company Valeant acquired a little over a year ago — filed a lawsuit against the suitor, claiming Valeant didn’t honor its agreement to adequately market Sprout’s flagship drug, which could have resulted in bonus compensation for Sprout’s investors.

That’s the Valeant Pharmaceuticals VRX stock holders have come to know and …well, try to love. It’s almost to make an investor forget it’s still a company doing business, and posting quarterly numbers. It’s going to happen again this week, on Tuesday morning.

Here’s what current and would-be shareholders need to know.

Earnings Preview

As of the most recent look, Valeant is expected to report third-quarter earnings of $1.78 per share on sales of $2.5 billion. Both would be a sequential improvement. But both would also be weaker on a year-over-year basis.

Valeant has run into a series of headwinds over the course of the past year. The first stumbling block was a tweet from Democratic presidential candidate Hillary Clinton, posted in September of last year, vowing to fight “price gouging” by specialty pharmaceutical companies.

Shortly after, a harsh but well-reasoned allegation from known short-selling firm Citron Research pulled the rug out from underneath Valeant stock. In short, Citron’s chief Andrew Left was the first to point out the questionable relationship the company has with specialty pharmacy Philidor. That suspicion turned out to have merit, by the way. VRX recently shut down Philidor, which as it turns out is owned by Valeant, and appears to be the point of interest in the criminal investigation of Pearson and Schiller.

The intense focus on drug pricing eventually landed Pearson in front of a Senate committee, and ultimately prompted his exit in addition to an overhaul of the company’s pricing policies. Even without those changes, though, that and the technical default it created on its debt, the drugmaker has suffered as much damage to its reputation as it has its revenue.

3 Things to Know Beforehand

For a brief while, it looked as if Valeant Pharmaceuticals was going to dig its way out of a hole, even if it meant selling some of its recently acquired drugs and divisions to partially pay down on its mountain of debt. Now, it’s not clear if that’s going to be enough to undo all of the recent damage the company has inflicted on itself.

Ironically, the least important aspect of Tuesday’s earnings report for VRX will be its earnings numbers. Three bigger, subjectivity factors are going to drive Valeant stock higher or lower for a while.

In no certain order…

1. Selling its assets at a palatable price: Over the course of the past several years, Valeant developed a well-deserved reputation as a buyer of up-and-coming companies with promising drugs. The end result? Among other things, $31 billion worth of debt. It was never easily manageable, but with the revenue and profit-margin tide pushing in the wrong direction, it’s become downright affordable. Valeant is now looking to raise funds by selling some of these recent acquisitions. Salix is likely to be sold to Takeda for $10 billion, and its eye surgery equipment business could go for $2.5 billion. All well and good, but Valeant paid $11 billion for the company early last year. It certainly spent more in the meantime getting it going under the Valeant umbrella.
2. Damage control: Regardless of the efforts new CEO Joseph Papas has made to restore credibility with regulators, shareholders and customers — benefits managers and hospitals — it’s still not enough. Perhaps more time is needed, but to the extent extortion-like pricing was a problem, another round of pricing rethinking may be necessary. A lot of would-be buyers still aren’t convinced the organization can be trusted. Valeant needs a specific plan.
3. Legal trouble: While the company itself has been implicated in the criminal investigation of Schiller and Pearson, it’s doubtful Valeant Pharmaceuticalswill be penalized — systemic fraud intent is tough to prove. All the same, it’s a potential legal hurdle, and those are never cheap to clear. In the meantime, Sprout shareholders crying foul. There’s nothing else on the litigation radar right now, but with VRX stock down more than 90% since the middle of last year, clearly the company has made a lot of enemies.

Bottom Line

The market is apt to respond to Tuesday morning’s earnings report, one way or another. It’s unlikely, however, that knee-jerk response is going to go anywhere. Valeant his bigger-picture fish to fry. Those are potential liabilities, though potential opportunities too.

In other words, looking at VRX stock here as a short-term play is a coin toss, at best. As a long-term speculation though … well, Tuesday’s results won’t matter much on that front, either.

It’s still a transition story. Don’t read too much into its third quarter.

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