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Reversal of fortune

Anyone who has paid attention to Valeant Pharmaceuticals International Inc. over the last few years cannot be surprised by its reversal of fortune. Yet it is something to behold.

Last July, its stock traded for roughly $260 a share—up about 175 percent since it acquired local icon Bausch & Lomb Inc. two years earlier. This week, Valeant shares for a time dipped below $26.

The low point came after Valeant announced that CEO Michael Pearson, the engineer of the strategy that dazzled Wall Street, would exit as soon as his successor is named. The company also confirmed that it had identified misstatements of financial results that would reduce its 2014 revenue by about $50 million and earnings by roughly $33 million.

“The improper conduct of the company’s former chief financial officer and former corporate controller … contributed to the misstatement of results,” Valeant noted in a filing with the Securities and Exchange Commission. The tone set at the top of the firm, where “challenging targets were set and achieving those targets was a key performance expectation,” deserve at least some of the blame.

This is only the latest bad news for Valeant. An SEC probe into accounting irregularities, federal inquiries into the firm’s pricing policies, possible antitrust violations, the looming threat of default on some bond covenants, a mountain of debt—it has been one thing after another for months.

To be sure, not everyone thought it would come to this for Valeant. Mr. Pearson’s idea—borrow to buy pharmaceutical firms, then jack up their drug prices while slashing staff and research spending—seemed grand indeed to many investors. Until the stock tanked.

What happens next could depend largely on activist investor William Ackman of Pershing Square Capital Management L.P., who now has a Valeant board seat and a big paper loss to recoup.

That could mean a sale of some or all of Bausch & Lomb—bringing revived hopes that control of it might return here. Anything is possible, but in Wall Street’s money culture, Bausch & Lomb’s deep roots in this community likely won’t matter much.

3/25/2016 (c) 2016 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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