HOW VALEANT’S WEEK WENT FROM BAD TO WORSE.
Firm denies Seconal hike link to suicide law
It was another bad news week for Valeant Pharmaceuticals International Inc., a company that in the past year has become accustomed to bad news.
The firm a nnounced Monday that controversial chief executive Michael Pearson is on his way out, then sparked an internal feud by accusing former CFO and c urrent board member Howard Schiller of “improper conduct.”
On Thursday the embattled firm faced yet another challenge to its reputation, when it was forced to respond to a report from California’s KQED News accusing Valeant of doubling the price of Seconal, a drug of choice for physician- assisted suicides, to take advantage of a new law in California.
“The price increase for the drug occurred shortly after Valeant acquired it, and months before California’s assisted suicide law passed,” the company said in a statement. “The suggestion that Valeant raised the price to take advantage of a law that had not yet passed, for a use for which the drug is not even indicated, defies common sense.”
For a company that profited from hiking the prices of desperately-needed drugs, the current troubles at Valeant might seem like poetic justice to some.
Valeant’s rise was based on a business model that ditched t he t r aditional pharmaceutical practice of investing cash into research i n order to develop new drugs and bring them to market. The old model also had high failure rates, but it encouraged innovation and breakthrough discoveries.
When Pearson came to Valeant in 2008, he focused on acquisitions, scooping up companies with profitable drugs and making t hem leaner. In actual terms, that meant gutting research departments, firing scientists and ensuring almost no new drugs would be created. Instead, Valeant hiked up prices on the drugs it acquired.
The only winners were shareholders, who i roni cally, are now the one’s suffering f rom Valeant’s pricing.
Investment firm Ruane, Cunniff & Goldfarb an- nounced Thursday t hat 71-year-old Robert Goldfarb, its longtime chief executive officer and co- manager of the Sequoia Fund, one of the largest holders of Valeant stock, will be stepping down from the company.
Goldfarb had overseen the holding of Valeant in the fund, which grew to to be nearly one- third of all holdings. Despite a 45- year career that saw him manage Sequoia to be one of the mutual- fund industry’s best performers, Goldfarb couldn’t survive a performance that trailed 98 per cent of his peers this year, mostly due to Valeant’s plunge.
“Valeant is the biggest mistake t his f und e ver made,” said Steven Roge, a financial adviser with R.W. Roge & Co. and who has owned Sequoia since 1999, during an interview with Bloomberg News.
Valeant’s stock has plummeted more than 84 per cent in the past 12 months, from a high of $ 263.70 on Aug. 5 to roughly $ 41 as of Thursday.
But the share price is only a symptom of the vast array of problems facing Valeant.
The c ompany i s now quickly approaching a crucial deadline. Valeant must file a 10- K, including audited financial statements, by the end of this month. It is already in breach of reporting covenants to its bondholders because it missed a March 16 deadline.
The missed deadline is extremely worrying for a company that has a lot of allegations about accounting irregularities swirling around it. Last year a short seller published a report accusing Valeant of inflating revenue by using a specialty pharmacy, Philidor Rx Services, to alter doctor orders and make it appear prescriptions preferred Valeant- owned medications over cheaper generic choices.
Analysts are turning on Valeant, too. While the company was almost universally rated a buy a year ago, the latest survey by Blooomberg shows five analysts rate the company a sell, 10 recommend holding shares if already bought and seven recommend buying shares. Several other analysts have suspended their coverage.
Whoever takes the helm of Valeant after Pearson will face the monumental task of trying to save a company reeling from regulatory and criminal investigations, lack of market trust and accounting irregularities. Pearson is expected to stay on temporarily until the company finds a replacement.
But Valeant’s reputation may be beyond saving. Even its biggest booster, William Ackman of Pershing Square Capital Management, is apparently taking calls from his own concerned investors about why his company is still invested, according to a report in The Wall Street Journal.
Maybe the bigger question should be is why anyone at all is still invested.
VALEANT IS THE BIGGEST MISTAKE THIS FUND EVER MADE.