Valeant files overdue SEC report
Move by distressed drugmaker lifts debt-default burden
Valeant Pharmaceuticals resolved its default on some of its $30 billion in debt by finally filing its long-overdue U.S. financial report for 2015 on Friday. The Canadian drugmaker also announced a slate of mostly new nominees for elections to its board in June.
The moves briefly nudged up Valeant’s battered shares, but they quickly headed south amid a broader market selloff and the realization that the former Wall Street darling’s future is still in question.
The report didn’t reveal major new problems with Valeant’s “unethical” accounting practices, but the new board and executives will face so many problems that investors would be better off putting money into major drugmakers or other health care sectors, said Les Funtleyder, health care portfolio manager at E Squared Asset Management.
“They’re being investigated by everybody under the sun,” Funtleyder said. “That’s going to distract the company for a year at least. That’s assuming they don’t find anything.”
Agreements with the holders of its notes and bonds required Valeant to file its annual financial report with the U.S. Securities and Exchange Commission in March. When it didn’t, some debt holders declared Valeant in default and wrung higher interest rates out of the company. Further delay could have led debt holders to demand faster debt repayment.
Preventing that was crucial but amounts to successfully knocking out one mole in a monthslong whack-a-mole game with no end in sight.
Valeant is dealing with three federal investigations into its accounting and business practices, a huge stockprice plunge and insurers demanding bigger discounts from its inflated drug prices. On Wednesday, several current and former Valeant officials were forced to apologize while being grilled by Congress over Valeant’s strategy of buying up older medicines with limited competition and then jacking up their prices many times above prior levels. Both Democratic and Republican presidential candidates have blasted Valeant’s strategy and vowed to rein in pharmaceutical companies.
Activist investor Bill Ackman and his Pershing Square Capital Management, one of Valeant’s largest shareholders, are attempting a turnaround. The fund recently took over two positions on Valeant’s board, which is replacing J. Michael Pearson, the CEO behind Valeant’s run of serial acquisitions and staggering drug price increases. That made Valeant a symbol of pharmaceutical company greed and drove its debt to three times its current annual revenue, forcing it look at which assets it can sell to reduce debt.
On Friday, the company announced a slate of 11 nominees to Valeant’s board, including current member Ackman and incoming CEO Joseph Papa, the chairman and CEO of drugmaker Perrigo Co. Papa takes over in early May, and the elections are set for an annual meeting on June 14.
“The big questions are whether a new CEO and a few new board members are enough to create trust in a company that has been so publicly disgraced and whether the company can create and execute a business model that will make it a legitimate and profitable player in pharmaceuticals,” said Erik Gordon, an analyst and professor at University of Michigan’s Ross School of Business.
Valeant executives have constrained future growth by pledging an end to the exorbitant drug price increases that helped drive its share price from $35 in October 2011 to nearly $264 last August. In afternoon trading Friday, Valeant shares fell $2.36, or 6.7 percent, to $32.89.
Valeant’s corrected 2015 financial report states that it had a net loss of $291.7 million, compared with net income of $880.7 million in 2014. Revenue totaled $10.45 billion, up 27 percent from a restated $8.21 billion in 2014.