Valeant stock falls as
report of criminal probe adds to woes
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[August 12, 2016]
NEW YORK (Reuters) - Valeant
Pharmaceuticals International Inc <VRX.N> shares fell about 11 percent
on Thursday as new details about a criminal investigation into the
drugmaker reignited investor concerns about the company's past business
relationship with a mail-order pharmacy that sold its products.
News of the investigation, reported by the Wall Street Journal on
Wednesday, was a setback to the Canadian company's efforts clean up its
image, with some in the market concerned it could face penalties and may
have to pay more to borrow as it renegotiates debt.
After the article was published, Valeant said in a statement it had
disclosed it was being investigated by the U.S. Attorney's Office in
October and that it continued to cooperate with that probe.
Concern about other investigations, which focused on its drug pricing
and accounting practices, had already cut its share price by about 90
percent in one year.
The stock had gained 25 percent on Tuesday after Chief Executive Officer
Joseph Papa, who joined in May, outlined a plan to sell assets, pay down
debt and focus on dermatology, consumer and Bausch & Lomb eyecare.
Lawyers at the U.S. Attorney's Manhattan office are probing whether
Valeant <VRX.TO> obscured from insurers its relationship with a
specialty pharmacy, Philidor Rx, that helped inflate its drug sales, the
Journal reported on Wednesday, citing sources.
The investigation could lead to criminal charges against former Philidor
executives and Valeant as a company, the report added.
Laval, Quebec-based Valeant's U.S.-listed shares were down $2.91 at
$24.41. It peaked at $263.81 a year ago.
The investigation reflects lingering issues facing Valeant and shows
that it is "nowhere close to out of the woods," said David Neuhauser,
managing director of Livermore Partners, who added his firm covered its
profitable short position in Valeant this quarter.
INVESTOR, POLITICAL SCRUTINY
Valeant's relationship with Philidor was revealed last fall, including
the aggressive tactics Philidor used to receive payment from insurers.
That news as well as investor and political scrutiny of its sharp drug
price increases led to several investigations into pricing and its
patient assistance programs, including one by the U.S. Attorney's Office
in New York.
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The headquarters of Valeant Pharmaceuticals International Inc is
seen in Laval, Quebec in this file picture taken November 9, 2015.
Valeant has more than $30 billion in long-term debt and some investors
have been worried that is too much, given that it may not be able to
raise prices as it did before and has moved away from its strategy of
growth through serial mergers and acquisitions.
Valeant cut ties with Philidor last year and overhauled its board of
directors, bringing on its top investor, activist Bill Ackman.
After the investigations were disclosed last year, Wall Street began
expecting that there could be fines issued against the company.
"It is not possible for us to know how this investigation will turn or
if charges will be pursued," Wells Fargo analyst David Maris said in a
"We believe that with Valeant having such high debt, the impact of
financial or commercial penalties is high."
Papa told Canadian business channel BNN on Thursday that he did not want
to speculate on the likelihood or magnitude of any fine.
He said his sense was a resolution was "several years off" based on the
track record of such probes. "We know there are some issues out there
and we are going to work and cooperate fully,” he said.
Mizuho Securities analyst Irina Koffler wrote that Valeant's credit may
now be perceived as riskier and that the company may have to pay higher
interest rates under loan amendments it is negotiating.
Reuters, citing sources, reported earlier this week that Valeant is
offering to pay lenders a higher interest rate in order to obtain an
amendment to its debt agreement that would loosen one of its covenants.
(Reporting by Natalie Grover in Bengaluru, Caroline Humer in New York
and Rod Nickel in Winnipeg, Manitoba; Editing by Maju Samuel and Jeffrey
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