VALEANT, ON DEFENCE, CHANGES ITS PITCH

Focused on R&D, paying down debt

Back when its stock soared and investors fawned — just six months ago — Valeant Pharmaceuticals I nternational Inc. billed itself as a new kind of drug company. It thrived on acquiring new drugs rather than inventing them, and generating big profits from raising prices on old, undervalued treatments.

Now, in the face of federal investigations and a tumbling stock price, the company has a different pitch — as an old- fashioned drug company.

Valeant executives, struggling to persuade investors that the company is on the right path, have largely discarded audacious talk about big acquisitions and new business models. Instead, they are talking more about investing in research and development and paying down the company’s more than US$30 billion in debt.

“The company is singing a very different tune,” said Erik Gordon, who teaches business at the University of Michigan and studies the health care industry.

On Tuesday, Valeant will announce its fourth- quarter earnings and provide financial guidance for this year. The numbers were expected two weeks ago, but the company abruptly canceled the release after the unexpected return of its chief executive, Michael Pearson, from an extended medical leave.

Investors and analysts will be watching closely for any hints about what kind of company Valeant wants to become.

“We haven’t seen a financial statement out of the company in almost five months, and during this period there was a lot of turmoil,” said David Steinberg, an analyst for Jefferies. “So the company needs to show their employees and the investment community that the wheels haven’t fallen off.”

Valeant’s stock price has fallen to less than US$ 70 from more than US$ 225 in New York six months ago, as investors’ confidence has been shaken by a series of setbacks.

Its pricing strategies are being investigated by the federal government. So are the company’s ties to a mailorder pharmacy, Philidor Rx Services, that it used to help get around efforts by insurance companies to substitute cheaper generic alternatives for some of the company’s high-priced products.

In December, Valeant’s chief executive went on medical leave for what the company has said was a case of severe pneumonia. And two of the largest pharmacybenefit managers, CVS Caremark and Express Scripts, recently said they would limit their coverage of Jublia, the company’s costly drug to treat toenail fungus, which is a top seller.

Given t he mount i ng scrutiny and looming debt, Valeant has little choice, some analysts said, but to pursue a more conventional path.

“All of these foundations have been pulled out from under t hem,” said Vicki Bryan, a senior analyst with Gimme Credit, a bond research firm. “We don’t really have a clear idea of who this company is anymore.”

There is l i tt l e doubt, though, that the growing debt burden will need to be addressed.

For years, Valeant took advantage of a cheap credit market to buy companies, running up debt. Now the company owes more than its market valuation of nearly US$24 billion.

Laurie Little, a company spokeswoman, said, “We remain committed to bringing innovative products to market, reducing our leverage and delivering strong operating performance.”

Irina Koffler, an analyst for Mizuho Securities USA, said she was willing to allow Valeant time to sort out its recent troubles. “I think they’re just in damage control mode still,” she said. “I think they’re still digging through.”

Each week seemingly brings a fresh set of head- lines. Just this month, the company has added three new board members, lost a t op executive, settled with a pharmacy that had questioned its tactics and defended itself against a congressional committee that said the company had refused to turn over documents.

Bill Ackman, a hedge fund billionaire who has stood by Valeant during its recent turmoil, recently raised the possibility of selling off assets — such as Bausch & Lomb — or replacing management if the company’s troubles do not begin to subside.

“With every passing day, some f olks believe t hat there’s something horribly wrong,” Steinberg said. “And that’s why we just need them to put their cards on the table, so we can see the numbers.”

THERE WAS A LOT OF TURMOIL.