There are a million reasons not to like Valeant (VRX) , the gigantic former ultra-darling of the troubled pharmaceutical industry. Actually, there are thirty billion of them -- as in, $30 billion in debt and no plan yet to pay it off.
But the idea that you should sell it because its former CEO Mike Pearson and its former CFO Howard Schiller are possibly the subject of federal criminal investigations is not front and center.
This would not be the first time execs in pharma have been sued for overstating sales or finding entities that would allow them to do so. Current New Jersey Governor Chris Christie pursued Peter Dolan, the former CEO of Bristol Myers (BMY) , for three years for an illegal arrangement that boosted sales for that company. At the time, the company denied any wrongdoing by any executive.
Christie, who a decade ago was incredibly dogged in his pursuit of Bristol, was contented to put a former federal judge in as a monitor to be sure that Bristol behaved itself. The stock got hurt by the investigation, but subsequently recovered. Everyone pretty much got away with everything.
Now, if Pearson and Schiller were still running the company I think that it would be a very big deal for the stock of Valeant. It's entirely possible that in this case, the feds investigate and don't charge either man with any wrongdoing or charge them with something less salacious to the stock and less onerous to the company, which says it is cooperating. In other words, it could be no big deal.
What I have said over and over again is that what might be a big deal is if prices for big drugs of Valeant aren't holding up and at the same time the company can't sell any assets so that it has problems with cash flow. I think in a world where Zimmer Biomet (ZBH) has a tough time with selling devices and Novo Nordisk (NVO) has difficulty with insulin and human growth hormone, and AbbVie (ABBV) has discounting problems with Humira for arthritis injectable, and there seem to be cheaper, ultra competitive biosimilars running around all over the place, it is difficult for me to imagine that there aren't competitors nipping at Xifaxan for irritable bowel and Jublia -- $420 per bottle, lasts a month -- for toe fungus.
And yes, I know that doctors don't like to prescribe generic Wellbutrin, the real thing being a huge seller for Valeant. The common view on it is that it simply isn't as effective as the non-generic that Valeant makes. But at a certain point the insurance companies just stop caring and demand that if you want to take advantage of the co-pay you have to go generic, and we are at that point.
I know from when Joe Papa, the CEO of Valeant, came on Mad Money four months ago right after he took the job, that he was setting up a committee to evaluate the price increases that had been put through in the last few years, clearly with an eye toward rolling some of them back.
If that's the case, then we have to ask: where is the cash flow to pay off the debt, if any important prices are rolled back? Papa insisted that the pipeline is so bountiful that the future would provide the royalties. But where are those approvals? What can make up for the generic pressure?
I haven't seen any yet.
So then we default to the notion -- ooh, scary word -- of what can be sold. This is a concept that has been anathema to Papa. Of course, once you admit that something has to be sold you might as well say "firesale", so who can blame him?
But the one thing that is for certain is that the Justice Department is going to scrutinize any acquisition of the best asset available: Bausch & Lomb. As much as I think that Valeant's in big trouble, in a lesser scrutiny environment, the purchase of a Bausch by a company such as Johnson & Johnson (JNJ) or Novartis (NVS) would bring a huge purchase price for Valeant and would be a home run for all involved. I would be willing to take Valeant off the critical list.
But with this Justice Department? With this FTC?
I don't think so.
Which means that Valeant has to do it all with price increases, not rollbacks, and drug approvals, nor sales of franchises. Neither, I think, in this election year, at this particular time, is in the cards, which makes the problem of Valeant maybe the problem of this market as we come into the homestretch of 2016.