Drug­maker in trou­ble af­ter debt-fu­elled deal spree

Con­cor­dia bonds lose $245M af­ter post­ing dis­ap­point­ing third-quar­ter earn­ings

Toronto Star - - BUSINESS - CLAIRE BOS­TON AND CARO­LINE CHEN

Con­cor­dia In­ter­na­tional Corp.’s $6.5-bil­lion debt-fu­elled ac­qui­si­tion spree is com­ing back to haunt the drug­maker’s len­ders.

Bonds of the junk-rated com­pany lost about $245 mil­lion Mon­day, in their big­gest one-day de­cline, af­ter the com­pany posted dis­ap­point­ing third-quar­ter earn­ings re­sults and sus­pended its fore­cast. The Cana­dian drug­maker’s big­gest note now yields about 28.5 per cent, which is close to what in­vestors de­mand to hold Venezuela’s bench­mark debt. Its shares plunged more than 36 per cent to close at $2.71.

Sim­i­lar to its bet­ter-known and big­ger peer, Valeant Phar­ma­ceu­ti­cals In­ter­na­tional Inc., Con­cor­dia em­ployed a growth-by-ac­qui­si­tion strat­egy that in­creased its debt load by more than10-fold to $4.3 bil­lion in the last three years, ac­cord­ing to data com­piled by Bloomberg. Now that debt is weigh­ing on Con­cor­dia as it faces slow growth and an in­ves­ti­ga­tion of its pric­ing poli­cies.

“The prob­lem with the strat­egy of growth by ac­qui­si­tion is that it was pred­i­cated on buy­ing drugs and rais­ing prices sig­nif­i­cantly,” said Dim­itry Kh­mel­nit­sky, an an­a­lyst at Ver­i­tas In­vest­ment Re­search in Toronto. “That model right now is un­sus­tain­able.”

Kh­mel­nit­sky has a sell rat­ing on Con­cor­dia.

A lot of the com­pany’s woes can be traced back to its largest deal: the $4.7-bil­lion takeover of U.K.’s Amdipharm Mer­cury agreed to in Septem­ber 2015. The ac­qui­si­tion left Con­cor­dia sad­dled with about $4 bil­lion in debt and made it among the Cana­dian firms with the largest ex­po­sure to Europe and vul­ner­a­ble to the fall­out from the U.K.’s vote to leave the Euro­pean Union in June.

The com­pany’s for­tunes took an­other hit when a bill was in­tro­duced in the U.K. House of Com­mons in Septem­ber propos­ing con­trols on drug prices. The com­pany’s shares plunged as much as 27 per cent on Sept. 16 when the news of the bill emerged.

All of this did lit­tle to dent en­thu­si­asm for the com­pany when it came to the bond mar­ket a month later to raise $467 mil­lion for debt re­pay­ments. The com­pany was willing to pay as much as 9.25 per cent on the note sale that was han­dled by Gold­man Sachs, but man­aged to sell the debt at a coupon of 9 per cent.

Adam Peeler, a Con­cor­dia rep­re­sen­ta­tive, and Michael DuVally, a Gold­man Sachs spokesper­son, didn’t im­me­di­ately re­spond to mes­sages seek­ing com­ment.

Con­cor­dia fi­nanced the Amdipharm takeover with a mix­ture of loans and bonds.

The com­pany is “an­other vic­tim of lever­age,” Martin Shkreli, for­mer chief ex­ec­u­tive of­fi­cer of Tur­ing Phar­ma­ceu­ti­cals AG, said in a tweet on Mon­day. “We all have to learn the les­son — don’t bor­row money ex­ces­sively.”

Shkreli is cur­rently fac­ing charges re­lated to se­cu­ri­ties fraud. He has been dubbed the “most hated man in Amer­ica” in the me­dia for rais­ing the price of a po­ten­tially life-sav­ing drug by 5,000 per cent.

DREAM­STIME

Con­cor­dia’s ac­qui­si­tions in­creased its debt load by more than 10-fold.

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