Three Reasons Valeant (VRX) is Plunging Today

Investors continue to scratch their head as to why Valeant Pharma (NYSE: VRX) plunged 20% today. There are three theories to explain today's wild ride. The first theory is that there was mass liquidation by one of the company's largest shareholders. The second theory is that Bill Ackman is trying to force CEO Pearson out, which analysts say is a bad idea. Third, PDL BioPharma (NASDAQ: PDLI) said Deopmed didn't receive its royalty payment from Valeant on time.

From PDL's conf call:

The decrease in the Depomed royalty rights proceeds in the quarter ending September 30, 2015 is a result of no royalty payments being made by Valeant during the quarter. While Valeant reported revenue for Glumetzaof $53 million for the period ending September 30, 2015, it had not provided monthly reports or payments per its assumed contract during this period. In late October of 2015, Valeant issued to us reports of net royalties of $16.9 million and a cash payment of $18.9 million for the third quarter of 2015.

We have reflected this information in our quarter-end fair value assessment. Another way to explain this is that these cash flows are included in our future cash flow projections and reflected in the present value of the Depomed asset.

As a result of the continued uncertainty with inventory levels, the impact of gross to net reporting and the delays in reporting by Valeant, we expect to exercise our royalty audit right for Glumetza in the near future.

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