NY Times Breaks Down 7 'Main Theories' On Valeant

There are all kinds of theories flying around about who or what exactly is responsible for Valeant Pharmaceuticals Intl Inc VRX’s fall from grace. The New York Times' Steven Solomon broke down a number of the leading theories.

Valeant as Enron: This theory is that Valeant’s operations and earnings are simply inflated by fraudulent accounting, and the company will inevitably be taken down at some point.

Beware McKinsey: This theory centers on Valeant CEO J. Michael Pearson, a former consultant at McKinsey, surrounding himself with former McKinsey advisors and using tricks of the financial trade to create the appearance of organic growth.

The Perils of R&D Cuts: This theory asserts that Valeant’s problems are simply the inevitable consequences of driving growth via acquisitions and price hikes rather than investing in a solid R&P pipeline.

Predatory Pricing: This theory is that Valeant’s history of buying new drugs and aggressively raising prices is no longer viable following intense scrutiny of drug pricing by Congress and the media.

The Hedge Funds: Valeant activist fund shareholder ValueAct pushed hard for R&D cuts and more focus on acquisitions, and this theory blames ValueAct’s influence for Valeant’s downfall.

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The Shareholders: This theory is that Valeant has too many large shareholders, such as the Sequoia Fund, with massive stakes in the company, and aggressive buying and selling of these large positions is responsible for the rise and fall of Valeant.

The Deal Professor: This theory centers on the binary nature of Wall Street’s view of a company like Valeant,which is neither the cash cow it was perceived to be at its height nor the house of cards it is perceived to be following its downfall.

For now, the investing world is watching and waiting to see which, if any, of these theories fully explains Valeant’s astonishing 89.3 percent slide in less than a year.

Disclosure: The author holds no position in the stocks mentioned.