Shares of Valeant Pharmaceuticals International Inc. (VRX) rose more than 6 percent on news that its largest shareholder, hedge fund billionaire John Paulson of Paulson & Co., joined its board of directors as of June 14. (See also: Billionaire Hedge Funder John Paulson Joins Valeant Board.)

The addition of Paulson brings Valeant's board to 11 members from 10. Paulson's firm owns about 19.4 million shares, or 5.58 percent, of the company. Paulson's track record with Valeant is on par with that of Bill Ackman of Pershing Square, except Ackman knew when to get out finally.

According to filings, Paulson bought his first 1.0 million shares in the first quarter of 2014, when Valeant was trading at $130 to $140 a share. By the third quarter of 2015, Paulson's stake grew to nearly 8.9 million shares, when VRX was trading well into the $200 range. By the second quarter of 2016, Paulson had just over 19.0 million shares, when the stock was trading in the $30 range. So here, Valeant is replacing one high-profile hedge fund manager with another, both with similar results. 

Is Paulson's addition to the board reason enough for Valeant shares to pop by over 6 percent? No.

VRX Chart

VRX data by YCharts

An investor in Valeant should only be focused on what is changing from this nomination, if anything at all. In reality, the company still has a mountain of debt and a revenue stream that is, at best, projected to be flat.  

VRX Revenue (TTM) Chart

VRX Revenue (TTM) data by YCharts

Valeant has paid nearly $2.0 billion over the trailing 12 months in interest expenses alone. Valeant's debt has been decreasing recently as the company sold assets to raise cash to pay down that debt, but the pharmaceutical company still has a very long way to go. 

VRX Total Interest Expense (TTM) Chart

VRX Total Interest Expense (TTM) data by YCharts

Valeant's net income has been falling in recent years. Companies that have a tremendous debt burden with flat-to-no revenue growth and are losing money will need money at some point to continue to operate. For Valeant, that likely means selling more assets, refinancing existing debt, or going to the market to raise capital, either through debt or equity offerings. If you're a Valeant shareholder, the last thing you want to see is an equity offering. 

Valeant has a long and rough road ahead, and John Paulson's addition to its board seems more cosmetic at this point than anything else. 

Michael Kramer is the Founder and Portfolio Manager of Mott Capital Management LLC, a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance. 

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