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Valeant’s Stock Plunges 18 Pct as Company’s Headaches Mount

By on February 29, 2016

Valeant Pharmaceuticals’ stock tanked Monday amid ongoing turmoil over the embattled drugmaker’s delayed financial results, its leader’s health and government probes into what has gone wrong at the Canadian company.

Even news Sunday that CEO Michael Pearson is returning immediately after nine weeks recovering from pneumonia and unspecified complications failed to buoy Valeant shares.

The shares are trading at less than one-third of their $263.81 high last August. That was right before Valeant’s practice of buying rights to old drugs and jacking up the prices came under congressional scrutiny, and a few months before its questionable relationship with a drug distributor raised concerns about the accuracy of its financial reporting.

In its latest headache, Valeant confirmed Monday that the Securities and Exchange Commission is investigating the company. Valeant didn’t provide further details and the SEC declined to comment.

The probe is separate from a previously disclosed SEC inquiry into accounting and inventory issues at Salix Pharmaceutical, a drugmaker that Valeant bought for $11 billion last year.

Besides the SEC and Congress, Valeant is also facing inquiries from U.S. Attorney’s offices in Massachusetts and New York.

Valeant shares plunged $14.85, or 18 percent, to close Monday at $65.80.

Investors initially appeared to be reacting to Valeant’s announcement in a statement Sunday that is withdrawing all its financial forecasts.

Nomura equity analyst Shibani Malhotra wrote Monday that while Pearson’s return to the helm is a “positive,” for the company, she’s concerned by Valeant’s decision to withdraw its 2016 guidance, which was confirmed just six weeks ago.

Valeant Pharmaceuticals International Inc., based in Laval, Quebec, also again delayed announcing its preliminary fourth-quarter and 2015 financial results, which were to be released Monday. The company cited Pearson’s return to work as the reason.

“Valeant won’t turn around until it restores its credibility, and it doesn’t help to bring back the CEO who created the questions about financial reporting on his watch and his handling of questions about Philidor,” Erik Gordon, a professor and pharmaceuticals analyst at University of Michigan’s Ross School of Business, wrote in an email.

Pearson’s convalescence, and the limited information the company released about his condition, aren’t the only concerns dragging down Valeant shares.

Last Tuesday, Valeant said it would delay filing its 2015 annual report with regulators while it sorts out its former relationship with the mail-order pharmacy Philidor. Valeant said it expected to lower reported 2014 earnings by about 10 cents per share and raise 2015 earnings by about 9 cents. That’s because about $58 million in sales to Philidor were improperly recognized too early – when they were delivered to Philidor, rather than when patients received the products.

Moody’s Investor’s Service on Monday put all ratings of Valeant and its subsidiaries under review for possible downgrade. It cited concerns that “Valeant’s underlying operating performance is weaker than Moody’s previous expectations, potentially impeding the company’s” plans to reduce its debt.

As of Sept. 30, Valeant reported long-term debt of just over $30 billion – over 20 times its operating profit for 2015’s first nine months and three times its annual revenue of about $10 billion, more than 80 percent of which comes from the U.S.

Valeant cut ties with Philidor last fall amid allegations that Philidor created a network of “phantom pharmacies” to steer pharmacy benefit managers toward Valeant’s more-expensive drugs instead of cheaper alternatives.

Responding to public criticism over its huge price increases for some products, Valeant’s interim CEO, Howard Schiller, recently told a House committee investigating the issue that he froze all of Valeant’s price increases when he took over in January. He said Valeant would aim for more modest price increases in the future.

Although he is bowing out as temporary CEO, Schiller will remain on Valeant’s board. The board also decided to split the roles of chairman and CEO, both of which had been held by Pearson. Robert A. Ingram, a board member since 2010, will now be chairman, a role he previously filled five years ago.

The board said in the statement that planning for Pearson’s successor and expanding Valeant’s senior management are “high priorities.”

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