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Shares of Valeant Pharmaceuticals International, Inc. (VRX - Free Report) dropped 7.2% after the company’s chief executive officer (CEO), J. Michael Pearson, received a subpoena from the Senate Aging Committee.

The CEO has been asked to testify before the committee on Apr 27 in connection with the price hike issue. We note that this is the third hearing in a row that the committee is conducting to investigate sudden aggressive price hike of Rx drugs that have been around for decades.

The first hearing of the series was held in Dec 2015. The bipartisan investigation primarily focused on pharmaceutical companies that operate more like hedge funds than traditional pharmaceutical companies. The second hearing took place on Mar 17, wherein the committee analyzed the monopoly business models of Turing and Retrophin, both of which were formerly headed by Martin Shkreli.

We note that the company has been under the spotlight since Aug 2015 for all the wrong reasons like a price hike of specialty drugs, erroneous financial reporting, and termination of contracts with Philidor Rx Services. However, at each step, it seems that the going just got tougher for Valeant.

Specifically, in Oct 2015, the company came under focus because of a massive price hike of two of its drugs – Isuprel and Nitropress – which were acquired from Marathon Pharmaceuticals. Valeant was accused of having followed the same business model as Martin Shkreli, whose company had spiked the price of Daraprim from $13.50 to $750.

Last week, Valeant announced that Pearson will leave the company and the search for a new CEO is ongoing. The company has also slashed its guidance for the first quarter due to continued inventory destocking in the dermatology and gastrointestinal businesses, and revenue shortfalls in several businesses such as ophthalmology and women's health, along with weak sales of drugs like Solta and Obagi. In addition, management transition issues and persistent organizational distractions are expected to impact business during the quarter. Valeant has trimmed its full-year outlook as well.

Amid all this mess, William A. Ackman, the CEO of Pershing Square Capital Management, L.P., has joined Valeant’s board of directors, effective immediately. We note that Pershing Square Capital Management has a 9.0% stake in Valeant.

Management has also indicated a likely credit default in the event of a delay in Valeant’s regulatory filings (10-K). The company’s credit agreement and bond indenture contain financial reporting requirements that may be impacted by a delay in the filing of its 10-K. As Valeant expects to file its 10-K by Apr 29, 2016, it intends to seek a waiver from lenders under its credit facility.

Valeant currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the health care sector include Corcept Therapeutics (CORT - Free Report) , Sucampo Pharmaceuticals (SCMP - Free Report) and ArQule, Inc. (ARQL - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy).

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