The VRX Stock Price Soars Today, but We're Still Bearish in 2016

The Valeant Pharmaceuticals International Inc. (NYSE: VRX) stock price soared 16% to $110.98 Tuesday, but we remain bearish on the VRX stock price in 2016.

Sending the Valeant stock price higher today was news the drug giant secured a deal to distribute some of its medicines through Walgreens Boots Alliance Inc. (Nasdaq: WBA) pharmacies.

The Walgreens deal comes six weeks after Valeant terminated a distribution arrangement with specialty pharmacy Philidor Rx. The pharmacy has been accused of questionable business practices.

pharmaceuticalsUnder the arrangement with Walgreens, Valeant will trim prices by 10% for branded dermatology and ophthalmology products distributed by Walgreens pharmacies. Valeant also plans to extend the model to independent retail pharmacies.

The deal starts in Q1 2016 and will span 20 years. The deal also includes more than 8,000 U.S. Walgreens pharmacies.

The deal comes at a time when the VRX stock price has been completely beaten down. Even with today's gain, Valeant stock is still down more than 58% since Aug. 1.

Valeant didn't detail how the deal would affect its revenue prospects, but the company will hold an investor day Wednesday to provide new forecasts.

Still, the beleaguered drug giant faces a number of high hurdles that will weigh on the VRX stock price for months, if not years...

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Why We're Bearish on the VRX Stock Price Now

The Valeant stock price remains down nearly 25% year to date.

The trouble first started when multiple federal investigations over steep price increases began this summer.

Then came a scathing report in mid-October from Citron Research. The short seller compared Valeant to Enron. Citron suggested that Valeant was using Philidor and other specialty pharmacies to commit accounting fraud. Valeant maintained its accounting of Philidor was appropriate. Yet it appointed a committee of some of its directors to review allegations about its relationship with the specialty pharmacy.

Money Morning Global Credit Strategist Michael E. Lewitt is skeptical of Valeant's claims about what it did and didn't know about Philidor.

"Philidor wasn't some distant third party - it was a company for which VRX had paid $100 million for an option to purchase," Lewitt said. "Mr. Pearson [Valeant's CEO] is known as a hands-on manager - are we to seriously believe he had no idea what was going on at Philidor?"

At the end of October, pharmacy benefits managers CVS Health, Express Scripts, and United Health OptumRX said they would stop working with Philidor.

On Oct. 30, Valeant announced it was cutting ties with Philidor, which handled about 7% of Valeant's revenue. Valeant cited allegations about Philidor's business. Allegations have included tampering with prescriptions to boost reimbursement for Valeant products.

Money Morning Defense & Tech Specialist Michael A. Robinson stresses that no one at Valeant or Philidor has been charged with criminal wrongdoing. "But this is definitely a messy corporate scandal that raises disturbing questions about Valeant's business practices," Robinson said.

Valeant has become an "industry pariah," Robinson explains. Investigations into sales and distributions "call the company's core operations into question, along with the steadiness and integrity of its leadership."

Turnaround investors might be tempted to take a run at the stock because of the swift and steep decline in the VRX stock price. But Robinson advises investors to stay away in 2016.

"Sometimes the best trades are the ones you never make," Robinsons shares. "Until a clearer story about Valeant emerges and we get our hands around some good, hard numbers, I would avoid this stock."

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