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What's Behind Valeant Pharmaceuticals Soaring 10% Today?

By Todd Campbell - May 3, 2016 at 5:06PM

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Shares were heading higher after credit agencies improved their outlook and its new CEO took the reins.


What: After new CEO Joseph Papa officially took over from longtime ex-CEO Michael Pearson and credit agencies revised their outlook, shares of Valeant Pharmaceutical (BHC 1.06%) increased by nearly 10% on Tuesday.

So what: The company has suffered more than its fair share of black eyes during the past year. Following last year's revelation that Valeant Pharmaceuticals acquired two heart drugs only to increase their price by more than 500% and 200%, respectively, scrutiny has led to an unraveling of the company's distribution model, and a review of its accounting practices.

After determining that its relationship with drug distributor Philidor was too close for comfort, the company shuttered that relationship and inked a new distribution deal with Walgreens Boots Alliance' retail stores. However, the changeover has slowed Valeant's sales and as a result, ex-CEO Pearson significantly reduced Valeant's full year sales forecast in March.

The cut in guidance did little to assuage debt holders who were already growing concerned about the fact that the company's accounting review was causing a delay in its filing of an annual 10-K report with the SEC. Risk that increasingly dubious debt holders would cry "default" caused both S&P and Moody's to lower their outlook on Valeant's credit.

Fortunately, Valeant's accounting review wrapped up last month, and the company filed its 10-K with the SEC last week. As a result, S&P and Moody's have re-evaluated their outlook. Today, the S&P upped its take on Valeant's corporate credit rating and secured debt rating to "positive" from "developing," and Moody's upgraded its assessment on the company's likelihood of default.

That news came alongside a report from Valeant on Tuesday that longtime healthcare executive Joseph Papa has taken over the company from Pearson.

Now what: There are still plenty of question marks associated with this company. Papa has to decide what actions are necessary to lower the company's massive debt burden, and that may include the sale of assets that many investors would prefer the company hang on to.

Additionally, its not clear how the Walgreens' deal is playing out or when that arrangement may begin to make up for the sales gap created by jettisoning Philidor.

Also, Papa has to repair credibility with health payers, patients, and Congress all while doing so under the microscope of main street investors and Bill Ackman, who is Valeant's biggest shareholder and who joined Valeant's board in March. Whether Papa can do all of this is unknown, but Tuesday's trading suggests that at least some investors are willing to bet he can.

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Stocks Mentioned

Bausch Health Companies Inc. Stock Quote
Bausch Health Companies Inc.
$8.60 (1.06%) $0.09
Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
$38.99 (-4.60%) $-1.88

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