The Senate Special Committee on Aging has been no friend to Valeant Pharmaceuticals (VRX). And the beleaguered drugmaker needs a friend now more than ever.
With VRX shares down more than 71% this year as of midday trading, it was announced Monday that Valeant's departing CEO Michael Pearson will face the panel on April 27 over allegations that Valeant unfairly hikes the prices of its drugs -- in some cases (most prominently highlighted by Democratic presidential candidate Hillary Clinton) at exponential levels from where patients had grown accustomed.
Pearson was ousted earlier this month as part of a broader management reshuffle, which included the addition of billionaire activist Bill Ackman and the vice chairman of his hedge fund, Pershing Square, to Valeant's board of directors. (Valeant has been the bane of Pershing Square's terrible 2015 performance, as Real Money reported.)
The Special Committee on Aging has been crusading against companies that have hiked prices on necessary drugs to exorbitant levels long before the arrest of Martin Shkreli in December, following an alleged drug-pricing scheme into companies Shkreli founded, Retrophin and MSMB Capital Management.
"Today's development with Martin Shkreli will not affect the Senate Aging Committee's bipartisan investigation into the sudden, aggressive price spikes of some decades-old drugs, which is not limited to one person or one company," the committee said at the time of Shkreli's arrest. "As we have said from the beginning, these price spikes have raised questions that are critically important to the American public¿and we will continue our investigation until we've found answers to those questions."
The congressional subpoena Monday does not bode well for Valeant shareholders, who are hoping the drugmaker can resolve such claims as well as investigations into the bookkeeping of its sales, in order to timely file a proper 10-K annual statement with the SEC. Any further delays could even prompt breaches on Valeant's debt covenants, which would likely encourage even more shareholders to flee.
And Ackman's plans to stage a turnaround at Valeant may also be frustrated by a recent warning issued by Sprout Pharmaceuticals, the company it acquired last year for about $1 billion, as Real Money reported. Sprout said in a March letter that Valeant was not honoring its acquisition agreement with Sprout, and must recognize terms of the deal including fair pricing of Sprout's drugs as well as limitations on how much of Sprout's operations are allowed to be cut.