Today, we begin with a warning…
Please read carefully. Something critical happened this week.
Never have so many of the smartest people on Wall Street been so wrong. And what happens next could send ripples throughout the entire market.
But first, a little background…
Until last year, most folks had never heard of Valeant Pharmaceuticals (VRX).
That all changed when a Wall Street Journal report made the company a ‘poster child’ for an outrageous new trend: companies buying the rights to existing drugs and treatments, then immediately jacking up their prices.
The report earned the company widespread criticism and even congressional inquiries, but it didn’t stop the stock from hitting an all-time high of $264 per share last August.
Unfortunately, Valeant’s problems were just starting…
Last fall, questions began to surface about the company’s accounting and business practices.
In simple terms, it appears the company may have tried to hide its relationship with a smaller, specialty pharmaceutical company in order to increase insurance company reimbursements.
All you really need to know is that these were serious allegations.
Several short-sellers published reports alleging outright fraud. One in particular went so far as to call the company a ‘pharmaceutical Enron.’
The news got even worse last month…
On February 23, Valeant finally admitted it might have to restate prior-year earnings after an internal review ‘raised questions about its accounting practices.’
The following week, the company officially announced it was under investigation by the Securities and Exchange Commission (‘SEC’). But that wasn’t even the worst news of the day. From a February 29 article in the Wall Street Journal…
This post was published at David Stockmans Contra Corner on March 25, 2016.
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