T. Rowe Price accuses Valeant of 'fraudulent scheme'
Shares of Valeant Pharmaceuticals International (VRX) fell anew Thursday after mutual fund giant T. Rowe Price Group accused the embattled drugmaker and its top executives of running a "fraudulent scheme" that "destroyed billions of dollars in shareholder value."
The Canada-based company's shares closed 2.7% lower at $29.19, the latest decline in a year-long plunge that has seen the stock lose roughly 90% of its value.
Valeant and its officials allegedly used a secret pharmacy network, deceptive pricing and reimbursements and fictitious accounting to shield the company’s brand-name drugs from generic competitors and artificially inflate revenues and profits, T. Rowe Price charged in a lawsuit filed Monday in New Jersey federal court.
While pursuing an expansion-via-acquisitions strategy, Valeant reported high revenue and earnings growth that it attributed to innovative marketing, outstanding sales and superior products, the lawsuit alleged.
However, Valeant "hid from investors the company’s clandestine network of controlled pharmacies and other deceptive practices that were true drivers of Valeant’s purported growth and which exposed the company to massive risks," the mutual fund and Alleghany Corp. alleged.
T. Rowe Price and Alleghany have been large institutional investors in Valeant shares. The lawsuit seeks compensatory damages and other legal relief.
Valeant said it was aware of the court filing but had not yet been served with the complaint.
The lawsuit "repeats allegations and claims as in the pending securities putative class action brought against Valeant by TIAA-CREF," Valeant said. "As with the original complaint, which was filed in October 2015, Valeant intends to defend itself and cannot comment further on ongoing litigation," the company said.
Valeant cuts ties with “phantom" pharmacy Philidor
Many of the allegations focused on Philidor Rx Services, a Pennsylvania mail-order pharmacy that was Valeant's partner in a since-canceled prescription distribution deal. Valeant "built a network of secret pharmacies around Philidor," and then created shell companies owned through the partner to acquire interests in retail pharmacies across the U.S, the lawsuit charged.
Valeant allegedly funneled prescriptions for its high-priced, branded drugs through Philidor. Employees of the Pennsylvania company, joined by Valeant staffers who worked at Philidor under aliases, "were instructed to employ a host of deceptive practices to prevent the substitution of cheaper generic equivalents for Valeant-branded drugs," the lawsuit charged.
Revelations about the Philidor relationship last year sparked a sell-off in Valeant shares. The company's financial fortunes have also fallen as it confirmed multiple federal, state and regulatory investigations of its drug-pricing and distribution practices.
Separately Thursday, Valeant secured permission from its lenders to revise credit terms in a move that gives the company more flexibility to navigate a turbulent period.
The drugmaker said it had received approval from its creditors to lower its earnings-to-interest-payment ratio, get greater flexibility to set assets and take on additional debt.
In exchange for the financing term changes, Valeant agreed to increase its credit-facility interest rate by 0.5 percentage points and to pay a fee of 0.25% on the outstanding principal.
"We are pleased to have the support of our lenders and appreciate their confidence in the Company's future," recently appointed Valeant CEO Joseph Papa said in a statement. "The amendment provides us with additional flexibility and allows us to focus on executing our strategic plan, developing our pipeline and improving patients' lives."
Valeant stock plunges after report of criminal probe
The detente between Valeant and its lenders comes after the company came under pressure from its creditors, which had sent a default notice to the company after public filing delays.
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