After a brutal Monday, Valeant Pharmaceuticals is having a drip-torture Tuesday.
Little pieces of bad news about the company seem to be coming down steadily, driving the stock down 5% through the trading day.
Here’s what we’ve got going on:
- Hillary Clinton released a new ad in which she vows to go after the company.
- RBC chopped its price target on the stock from $ 195 to $ 84, citing concerns about an SEC probe the company disclosed yesterday. (The shares are closer to $ 60 right now).
- Jefferies maintained its buy rating on the stock, but lowered its price target from $ 172 to $ 106.
- Deutsche Bank analysts suspended their rating of the stock, “Based on Valeant’s plans to restate prior results, the delay in filing its 10-K, the removal of prior ’16 guidance, and an ongoing Board investigation…”
This is the follow-up to a day when Valeant’s stock fell 18% after the company said it would delay the release of its quarterly earnings and its 10k; planned a call for analysts and then canceled it; and, finally, admitted that the SEC launched another investigation into the company sometime late last year.
This probe is in addition to investigations by the states of New York and Massachusetts as well as federal investigations into the company. We do not know why this probe was not disclosed, but Wall Street isn’t happy about it.
From the RBC note:
With respect to the SEC probe, VRX confirmed that it received a subpoena from the SEC in Q4/15 and intended to include it in its 2015 10-K disclosures. Details of the probe were not provided, but we believe that if VRX counsel did not see it as necessary to disclose the subpoena at the time received, then it was likely viewed as a ‘minor’ issue. Even so, this is yet another element that investors will want clarity on before the valuation multiple is expanded. As such, management and Board credibility may, unfortunately, be further eroded in the short term. In addition, it will likely lead investors to question what remains undisclosed today that may be released with the 10-K.
None of this is to say that no one was expecting another SEC suit. Back in October, Probes Reporter, a researcher focused on analysis based on government disclosure documents, wrote that it suspected that another investigation into the company was on the way.
As of 30-Sep-2015, we received information from the SEC to suggest the absence of recent SEC investigative activity at Valeant. Given recent developments, including Valeant’s receipt of subpoenas from federal prosecutors seeking information related to how it prices and distributes drugs; and, a recent and well-circulated Citron report , we expect this will change.
If they haven’t already, we fully expect SEC and Canadian enforcement officials to contact the company sometime in the next 10 days or so. We base this on the timing we’ve seen in documents from our database on closed SEC probes of other public companies.
In a report dated February 28, Probes noted that its suspicions were correct. In a letter dated February 22, the day Valeant disclosed that it would need to delay its annual report, the SEC confirmed that there was indeed action against Valeant.
We remain convinced that the now-confirmed SEC investigation of Valeant likely started last fall and absolutely should have been disclosed by now. Management may have their [strained] rationale for having not disclosed, but that matters little. The continued silence raises troubling questions about the overall quality of Valeant’s disclosures and the integrity of the management team that produces them.
We’ve embedded the Hillary Clinton video below in case you want to watch the pile-on in HD.
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