Valeant Pharmaceuticals International, Inc.’s VRX shares tanked 15.9% following a presentation by Bill Ackman, Chief Executive of Pershing Square Capital Management – the third-largest shareholder at Valeant – who attempted to defend the company’s business practices.
Additionally, Valeant announced its decision to terminate all contracts with Philidor Rx Services, a specialty pharmaceutical company providing back-end services (including call center, claims adjudication, IT and logistics support) and compliance/HIPPA regulation guidance to other pharmacies. Valeant’s decision to severe all ties with Philidor followed allegations regarding the latter’s strategy to increase Valeant’s product sales.
In the third quarter of 2015, Philidor contributed 6.8% to Valeant’s total revenue.
However, neither Valeant’s response to the allegations regarding Philidor’s business ethics nor the detailed presentation by Ackman could mitigate the damage done to the stock. Last week, Ruane, Cunniff & Goldfarb Inc., the largest shareholder at Valeant, had sent a letter to the company’s shareholders explaining that activities pursued by the company were legally permissible and were aimed at maximizing the company’s earnings.
Moreover, Ackman indicated that lack of effort by Valeant to maintain strong public relations, government relations and investor relations is one of the primary reasons behind the current hassles surrounding the company.
Valeant, which had attained a 52-week high on Aug 6, 2015 at a price of $263.81 per share, has lost 64.5% till now.
Meanwhile, Valeant appointed former Deputy Attorney General of the U.S., Mark Filip, currently working with Kirkland & Ellis LLP, to advise the ad hoc committee appointed by Valeant's board of directors, which will review the allegations against Valeant’s relationship with Philidor and other related matters.
We note that three other pharmacy-benefit managers, namely, CVS Health Corp. CVS, UnitedHealth Group Inc. UNH and Express Scripts Holding Co. ESRX have also decided to terminate their contracts with Philidor. In fact, according to market sources, Express Scripts is evaluating four additional specialty pharmacies with which Valeant has similar tie-ups.
Valeant carries a Zacks Rank #3 (Hold). Express Scripts is a better-ranked stock carrying a Zacks Rank #2 (Buy).
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