Morgan Stanley: We were wrong on Valeant, downgrading the stock as business is not stabilizing

Traders work beneath a monitor displaying Valeant Pharmaceuticals International Inc. signage on the floor of the New York Stock Exchange (NYSE) in New York.
Michael Nagle | Bloomberg | Getty Images

Wall Street rarely talks about its mistakes, but Morgan Stanley admitted in a note to clients Thursday that it messed up with its call to buy Valeant Pharmaceuticals over the summer.

The firm lowered its rating on the drug company to equal weight from overweight.

"Since our upgrade in August, our investment thesis that management would stabilize the business and execute accelerated deleveraging via divestitures has been wrong," analyst David Risinger wrote in a note to clients.

"Our thesis that Valeant's business would stabilize and asset sales would enhance value has not materialized. We move to the sidelines as we await future corporate updates."

Valeant shares are down 86 percent this year through Wednesday as the company has struggled with lower-than-expected financial results, further scrutiny of its drug-pricing business model and investigations of possibly illegal business practices at specialty pharmaceutical distributors.

The shares are down more than 50 percent since Risinger's August upgrade.