Between Sunday and Monday, Valeant ($VRX) had already announced the return of its pneumonia-stricken CEO, named a new chairman, nixed its 2016 guidance, put off the release of its fourth-quarter results and disclosed a competitive threat to one of its key products. But another surprise for investors was yet to come.
Late on Monday, in response to media inquiries, the Canadian drugmaker confirmed that the U.S. Securities and Exchange Commission was investigating the company, and sources told The Wall Street Journal that the subject was its now-canceled relationship with specialty pharmacy Philidor. The SEC subpoenaed the company in last year's fourth quarter, Valeant said in a statement.
Valeant said it would have disclosed the subpoena in its annual 10-K filing with the SEC, if it hadn't delayed that filing. Earlier this month, the company announced a $58 million accounting discrepancy discovered during its own probe of the Philidor ties, and said it would delay its earnings reports to make necessary changes.
|Valeant CEO J. Michael Pearson|
Ironically enough, CEO Michael Pearson had said earlier in the day that improving "Valeant's reporting procedures, internal controls and transparency" were among his top priorities.
"There's nothing to be gained by delaying disclosure," Duke University School of Law professor James Cox told Bloomberg. "What they're doing is indicating foot-dragging and being uncooperative and certainly not candid. This is consistent with what I've seen with the weak character of Valeant all the way through."
The news of the SEC probe didn't sit well with investors, either. They took shares down to a closing price of $68.50, an 18% plunge that marked a 75% decline since August and the stock's lowest level in three years.
Nor is the SEC's subpoena Valeant's first demand from prosecutors. In October, it received a pair--one from the U.S. Attorney's Office for the District of Massachusetts and one from the U.S. Attorney's Office for the Southern District of New York--related to its price-hike strategy. Also in October, it disclosed another subpoena--issued the month prior--from the U.S. Department of Justice regarding payments and agreements between its Bausch + Lomb division and medical professionals over eye surgery products. Congress is also investigating its pricing practices.
Pearson--who some industry-watchers thought may not return after the pricing backlash and missteps surrounding Philidor--has plenty of other issues to juggle, too, now that he's back in the driver's seat. To help replace the Philidor business, the company is piloting a drug discounting and distribution program with Walgreens ($WBA). But in response, major players Express Scripts ($ESRX) and CVS ($CVS) have frozen out some of Valeant's products. And as Valeant acknowledged Monday, Allergan ($AGN) is looking to market a generic of crucial growth-driver Xifaxan.
Given all the turmoil and question marks surrounding the Quebec-based drugmaker--as well as the absence of financial guidance--Mizuho Securities analyst Irina Koffler encouraged investors to forget everything they thought they knew.
"Investors should just delete all comments from recent investor meetings and calls and brace themselves for an entirely new story," she wrote in a note seen by the New York Times.
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