Valeant Pharmaceuticals: Eroded Reputation and Stock Price

In early January 2019, a recent Ivey Business School graduate logged into her online trading account to review her portfolio’s performance. As she scanned her investments, she paused at one stock in particular. It was time to make a decision regarding one of her most volatile stocks—Valeant Pharmaceuticals International Inc., recently renamed Bausch Health Companies Inc. The pharmaceutical company was once celebrated for its innovative business approach. However, both its stock price and reputation as one of Canada’s most valuable companies had plummeted in recent years, after accusations of price gouging and investigations for fraud by the US Securities and Exchange Commission. Overburdened with significant amounts of debt from a spree of acquisitions, the company was also scrutinized by investors and regulators for using non-GAAP accounting metrics for its financial statements. The recent graduate wondered if she should hold out hope that the stock would return to its historic highs, or if she should cut her losses and divest the stock.

This case is suitable for undergraduate- and graduate-level courses on financial accounting. It provides an overview of the rise and fall of a Canadian pharmaceutical giant. Because it covers various related issues at a high level, it can also serve as the course’s introductory case. This case highlights the business economics of the pharmaceutical sector and its strategic research and development decisions. It also highlights some of Valeant’s financial accounting decisions and the subsequent fraud investigations. Finally, the case provides an opportunity to discuss some of the ethical issues prevalent in this industry, particularly with respect to pricing. After working through the case and assignment questions, students will be able to<ul><li>understand the relevant business economics and growth strategies deployed in the pharmaceutical sector;</li><li>understand the relationship between strategic and financial reporting decisions and a company’s stock price;</li><li>use basic financial ratios to understand a company’s performance; and</li><li>appreciate some of the ethical challenges involved in making pricing decisions for the pharmaceutical sector.</li></ul>

• financial accounting
• earnings management
• ethical pricing issues
• pharmaceutical industry