The VRX stock price plunged 10.5% yesterday (Monday), marking one of the stock's worst single-day performances of the year.
On Monday, shares of Valeant Pharmaceuticals International Inc. (NYSE: VRX) dropped after CEO J. Michael Pearson took a medical leave of absence due to severe pneumonia. Valeant's board created both a three-man chief executive office to temporarily lead the company and a committee to oversee the office.
Pearson has headed the pharmaceutical giant since 2008 and has been at the center of the firm's numerous controversies this year. Back in September, Valeant came under fire for hiking the prices of two commonly used heart drugs - Nitropress and Isuprel - by 212% and 525%, respectively. The move outraged congressional Democrats, who urged the House Committee on Oversight and Government Reform to subpoena Pearson to testify on the price gouging.
Valeant's second blow came in October when Citron Research reported Valeant used its partner pharmacy, Philidor, to steer customers toward buying expensive drugs sold by Valeant. Citron called Valeant the "pharmaceutical Enron" in the report. This led several pharmacy benefits managers to sever ties with the company.
As a result, the VRX stock price has plummeted 57.8% since Sept. 18. It has fallen nearly 43% in just the fourth quarter alone.
With VRX stock down another 1.5% and trading just above $100 a share today (Tuesday), investors are wondering if the stock is bottoming out and ready to move higher next year...
While the VRX stock price may look affordable compared to last December, we recommend avoiding Valeant stock in 2016.
According to Money Morning Defense & Tech Specialist Michael A. Robinson, the company's recent controversies have shed a light on its ethically dubious practices. All of this has made the firm an "industry pariah" - a label that will be difficult to get rid of in the year ahead.
"No one at Valeant or Philidor has been charged with criminal wrongdoing," Robinson said on Dec. 3. "But this is definitely a messy corporate scandal that raises disturbing questions about Valeant's business practices."
And there's more to the company's predatory practices than just price gouging and sales manipulation. Valeant has been known to finance its acquisitions with high-risk junk bonds and fire the acquired company's employees to save money.
Not to mention that Valeant recently lowered its fourth-quarter earnings outlook. Earlier this month, the company reduced its Q4 earnings per share (EPS) guidance from $4.00 to $4.20 to $2.55 to $2.65. It also cut its sales estimates from $3.3 billion to $3.5 billion to $2.7 billion to $2.8 billion.
"Valeant may have flown too close to the sun," Robinson explained. "Until a clearer story about Valeant emerges and we get our hands around some good, hard numbers, I would avoid this stock."
Money Morning Global Credit Strategist Michael Lewitt says Valeant is a deeply troubled company. In fact, he says the company represents everything that's corrupt in the current state of the market.
Alex McGuire is an associate editor for Money Morning. Follow him on Twitter at @AlexMcGuire92.
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