Valean (VRX) Changes Seen as Steps in the Right Direction - BMO Capital

BMO Capital analyst Alex Arfaei weighed in on Valeant Pharmaceuticals (NYSE: VRX) after the company announced a number of significant updates: 1) CEO Mike Pearson is being replaced, and the search for a successor is ongoing; 2) Bill Ackman has joined the Board, and former CFO Howard Schiller is being asked to resign from the Board; 3) more updates regarding previous financials based on the ad hoc committee investigation; and 4) circumstances related to the delay in filing of the 10-K.

Overall, Arfaei see the changes as steps in the right direction: "Departure of CEO Mike Pearson marks the end of a transformative era at Valeant that had much broader ramifications. We see Mr. Pearson as a pioneer outsider who was able to successfully take advantage of the inefficiencies in his industry. Valeant’s exceptional performance during most of his tenure as CEO forced his peers in the Pharmaceutical industry to become more efficient, in our view. Many other CEOs since have attempted to emulate parts of his strategy. However, we believe that Mr. Pearson was simply too aggressive and underestimated the risks to his decisions (e.g., Philidor, Marathon, and other pricing-related deals), and that ultimately led to the current crises. Mr. Pearson, as the hands-on CEO he was, bears the ultimate responsibility for those decisions. Moreover, we believe Mr. Pearson’s blunt communication style made him, and by extension VRX, vulnerable to attacks from short sellers, the media and politicians. After recent inconsistencies in financial targets and the uninspiring 4Q15 earnings call, the argument for replacing him was stronger. The final strike may have been the downgrades after the 4Q15 call, questioning management credibility. Mr. Schiller, as the former CFO, facilitated the execution Mr. Pearson’s decisions, and, according to Valeant now, is responsible for “provision of incorrect information to the Committee and the company's auditors, [that] contributed to the misstatement of results."

As they review the financial misstatements Valeant outlined today, again they do not see clear evidence that support the fraud allegations.

The most important upcoming event for VRX is the filing of its 10-K, which the company expects by April 29, 2016.

The firm maintianed a Market Perform rating and price target of $66.00

For an analyst ratings summary and ratings history on Valeant Pharmaceuticals click here. For more ratings news on Valeant Pharmaceuticals click here.

Shares of Valeant Pharmaceuticals closed at $26.98 yesterday.

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