What's going on?

Troubled drugmaker, Valeant Pharmaceuticals, had a rough few days: it cancelled a scheduled call to discuss its earnings, it removed its official guidance for 2016 profits and its CEO returned from medical leave. It was also announced that it�s under investigation by the Securities & Exchange Commission (SEC). The stock fell 18% to a 3-year low!

What does this mean?

The SEC has asked for information about Valeant�s relationship with drug distributor Philidor. As we reported back in October, an investment firm had questioned the legality of Valeant�s accounting with regards to Philidor (it was called a �pharmaceutical Enron�). The scrapped earnings guidance is another bad sign. To put it lightly, there is a huge amount of uncertainty now surrounding the company � and investors tend to dislike uncertainty.

Why should I care?

For the stock:�This is hurting some high profile hedge funds. Valeant had spectacular returns until August 2015, but it is down 75% since then. It�s owned by a number of high profile investment funds, whose returns have suffered as a result. But at least one of them is standing by its investment and believes these issues will be sorted out in a matter of weeks.

The bigger picture: Valeant�s formerly profitable business model is under major threat. It�s one of many firms that often purchased niche drugs that treated, say, a rare disease. It then would increase the price of that drug and reap the benefits. But following political pressure, that model is disappearing.