Valeant Pharmaceuticals International Inc. has revealed that it is under investigation by the United States Securities and Exchange Commission for an unlawful relationship with the prescription service, Philidor. As a result of the investigation, Valeant has canceled this year’s financial guidance, postponed the earnings report of last quarter and announced the return of Chief Executive Officer Michael Pearson from medical leave.
Valeant released the following statement on its website detailing the numerous investigative operations the company is facing: “In response to media inquiries, Valeant confirmed that it has several ongoing investigations, including investigations by the U.S. Attorney’s Offices for Massachusetts and the Southern District of New York, the SEC, and Congress.”
Additionally, Valeant has also confirmed that it received “a subpoena from the SEC in the fourth quarter of 2015 and, in the normal course, would have included this disclosure in its 2015 10-K.”
The investigation is centered around Valeant’s inter-pharmaceutical financial relations with Philidor.
The Canadian chain is under scrutiny for allegedly purchasing medical substances from the company and in turn, raising the prices to sell on the market without consumer knowledge.
After Andrew Left of Citron Research, an online forum for identifying company fraud and proposing truthful information for public domain, suggested the relationship between Valeant and Philidor in a published report, the controversy spurred.
In response to the article, Valeant asked the SEC to investigate Left for the information that he put forth. Left raised questions about Valeant’s business model and ethical standards. In turn, upon investigating Left, the SEC turned toward Valeant and began examining the company on whether or not the former executives misled investors about inventory levels for certain key drugs. Essentially, it is framed that Valeant triggered the investigation upon itself by pointing fingers at Left.
It is confirmed that by using the prescription ordering/delivery service, the company had been substituting cheaper, generic products for higher priced alternatives and unlawfully distributing the medications to patients in partnership with the company.
With the investigation in place, Valeant is facing numerous, dire consequences.
Its stock has plummeted by more than 21 percent. CVS Caremark and Express Scripts have recently said they will limit their coverage of Jublia, a costly drug supplied by Valeant.
Allergan Co. has too provided a challenge for Valeant with their drug Xifaxan.
Unfortunately, this is not the first time that Valeant Pharmaceuticals has caused controversy in the stock market and for consumers at large.
Although 2015 began with high success under CEO Michael Pearson along with William A. Ackman and John P. Paulson who joined the hedge fund management team of Valeant, the company tumbled throughout the entire year.
Valeant’s policy of acquiring these old drugs and raising their prices once drove its stock to new heights, attracting investors like William A. Ackman of Pershing Square Capital Management and the Sequoia Fund. However, this past fall, Valeant lost two-thirds of its value as some investors began questioning the numbers the company had proposed with a debt of more than $30 million.
The company first received scrutiny when it acquired two old heart drugs, Isuprel and Nitropress, and immediately increased the stock price by more than 500 and 200 percent. This led to an immediate decline in company stock.
Although Congress requested more information regarding the company’s practices in August of the year, Valeant declined to cooperate with the inquiries.
Shortly after reviewing its filing, Pearson released the following statement, “All of us at Valeant firmly believe in maintaining strong regulatory and financial controls and believe we have operated our business in a fully compliant manner.”
Once again, however, Valeant ran into problems. In October of 2015, the company disclosed that it had been receiving subpoenas for its offices in Massachusetts and Manhattan from federal prosecutors regarding the same matters for which it is once again scrutinized today—pricing policies and distribution procedures.
This time, the company’s stock plummeted by more than 40 percent.
Amid the uncertainty of investors whose concern with Valeant’s stock had hit an ultimate high, Pearson called a conference and presented guidance on the company’s financial data.
Although Pearson did concede that the company numbers were below Wall Street expectations, he promised that 2016 would be a year of opportunity for Valeant.
He stated, “[The board members of Valeant] believe that we are entering a new era of growth and opportunity as we continue to build and grow our businesses around the world and deliver medicines and products at affordable prices that improve the lives of patients.”
Unfortunately, Pearson’s statement assuring change did not carry through into the next year.
The current SEC investigation may solidify an underwritten status for the company.
Pearson responded to its current situation, “The past several months have taught us some painful lessons, and I apologize for the turmoil that has impacted investors’ and other constituencies’ confidence in our company.
We are working diligently to announce Q4 2015 results and updated guidance as soon as possible. I and our board are committed to working our hardest to restore faith in our company and its future.”
It is uncertain as of yet whether or not the company will be able to grow, stabilize and pat off its debt.
As it stands, the company must file its fourth quarter earnings by March 15 or it can face the prospects of an unlikely removal from the New York Stock Exchange.
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