Canadian pharmaceutical firm Valeant Pharmaceuticals International Inc. ("Valeant" or the "Company") has seen better days. Since late September, Valeant's stock dropped approximately 85 percent, from nearly $200 per share to $26.98 per share at the end of March 18, 2016. Unsurprisingly, the drastic drop in stock value was paired with an investigation by the U.S. Securities and Exchange Commission ("SEC"), which caused skittish investors to question the viability of Valeant moving forward.
Valeant CEO, Mike Pearson ("Pearson"), sought to reassure investors, but it may be too little too late. For example, Pearson sent a memo to his employees to address concerns of a possibly looming bankruptcy. Answering the question directly, Pearson "assured" his employees that the Company was not on the verge of bankruptcy. He further commented, "restoring the public's confidence will take time and I want to apologize directly to each of you for the distractions this intense scrutiny is causing you, please know that I am working as hard as I can to turn things around, and I believe we will." While Pearson has stated that Valeant is taking this matter "very seriously," Valeant has yet to submit its 10-K annual report to the SEC, which could result in a default on some of the Company's bonds and loans.
Valeant's business ethics have been called into question several times. The Company has been accused of operating under a "buy, cut, and mark-up" strategy, whereby Valeant would buy other small drug firms, cut their costs, and then yank drug prices skyward -- in some instances, prices would increase 100 to 200 percent. Moreover, the rather unscrupulous scheme was allegedly heavily financed by debt, which caught the ire of politicians. Democratic presidential candidate Hilary Clinton slammed Valeant for its drug price hikes and vowed to "go after" the Company. Similarly, U.S. Rep Elijah Cummings (D-MD) strongly criticized Valeant and Turing Pharmaceuticals AG, another company accused of dramatically increasing the price of drugs, stating "[t]hey bought them, jacked up the prices, took as much money as they could out of the pockets of patients, hospitals, and others, and then put those funds into their own coffers."
Valeant's questionable behavior and underperformance has caused huge headaches for investors. From 401(k) funds to hedge fund managers, everyone holding equity in Valeant has been hit hard. For example, Pershing Square Capital Management announced it had lost $1.1 billion, ValueAct Holdings digested a $1 billion loss, and Paulson & Co reported a $903 million loss. With losses across several thousand investors, it opens the door for litigation against companies that did not manage investments prudently enough to read the writing on the wall.
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