Valeant Pharmaceuticals International Inc. is under investigation by the U.S. Filing in a previously undisclosed probe, the organization said on Monday, capping a tumultuous 24-hour period that saw the firm announce the return of their CEO and also the cancellation of an earnings announcement.
The SEC probe is separate from an existing investigation into a company purchased by Valeant this past year, Salix Pharmaceuticals Ltd., said an individual acquainted with the problem. The person declined to comment on the record because the matter isn’t yet public.
It’s unclear what the new probe is centered around.
“Valeant confirms that it has lots of ongoing investigations, including investigations through the U.S. Attorney’s Offices for Massachusetts and the Southern District of New York, the SEC, and Congress,” said Laurie Little, a Valeant spokeswoman.
Judy Burns, an SEC spokeswoman, declined to comment on the brand new probe.
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At time of the mid-afternoon revelation, shares were already down by more than ten percent after company postponed its pre-market earnings report and withdrew its 2016 guidance following the announcement on Sunday that leader Michael Pearson would be retaking the helm.
Pearson is viewed as integral towards the drug maker’s strategy and execution, and the return carrying out a two-month leave of absence due to severe pneumonia had generally been seen as a positive development.
It also suggested the board is confident in Valeant’s ability to move past recent controversies, such as inadequate financial controls, questions regarding its broader strategy, and allegations that it inflated revenues although the mail order pharmacy Philidor Rx Services.
But the postponement sparked concern among already nervous investors.
“We have been concerned about the feasibility of the guidance range for some time-” said Irina Koffler, an analyst at Mizuho Securities USA. “We think investors should just delete all comments from recent investor meetings and calls and brace themselves for an entirely new story.”
Valeant shares fell further in afternoon trading on the TSX, ultimately closing down $15.34, or almost 14 per cent, at $94.49.
The stock is down a lot more than 35 per cent since Pearson stepped from the company in late December. It’s lost more than 65 per cent of their value in the past six months, after briefly becoming Canada’s best company.
Valeant suggested it decided to withdraw guidance and delay its results because Pearson continues to be not able to review and sign off prior to their release.
“I understand that recent events are disappointing to everyone which is my responsibility to set the right tone for that organization,” Pearson said in a statement.
Even prior to the SEC revelation, analysts were cautious around the firm’s outlook.
Douglas Miehm at RBC Capital Markets believes an investment community is going to be pleased to see Pearson’s return before audited answers are presented and also the random committee completes its review of Valeant’s financial reporting and internal controls.
“Having said this, we see the overall approach to rescheduling Q4 and withdrawing guidance after reiterating it in January as likely to carry more weight until Mr. Pearson continues to be able to get in touch with the road and provide some clarity,’ Miehm said in a research note.
As an effect, the analyst expects Valeant shares is going to be weak until there’s certainty about its Q4 release, committee report, and 10-k filing.
TD Securities downgraded Valeant to carry from buy to mirror the reduced visibility moving forward.
“We believe that the current developments have the possibility to exacerbate what’s already been a protracted decline in investor confidence,” analyst Lennox Gibbs told clients, cutting his price target on the stock to US$110 from US$155.
Although management didn’t disclose the underlying drivers behind the choice to withdraw guidance, Gibbs suggested Philidor accounting, the transition to a different fulfilment program with Walgreens and on-going Federal investigations could be responsible.
Moody’s Investors Service on Monday placed its ratings on Valeant’s debt under review for a downgrade. It cited concerns the company’s performance is weaker than previously expected, which may impede its deleveraging plans.
“Valeant is confronting significant scrutiny on its pricing practices, including those found on products acquired through acquisitions, and uncertainty associated with government investigations,” Moody’s said.
Valeant also said it will split up the main executive and chairman roles, with board member Robert Ingram overtaking the second position from Pearson – an incremental step to improving corporate governance.
“Our hope is that the Ad Hoc Committee can conclude its efforts soon in relation to financial reporting and internal control matters, so we can all concentrate on building the best company we are able to,” Ingram said in a statement.
Valeant’s former chief financial officer, Howard Schiller, who served as interim chief executive in Pearson’s absence, will transition from that role but stick to the board.
Financial Post and Bloomberg News
