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Valeant CEO Writes to Employees as Shares Tumble Monday

The biotech industry continued to see losses Monday as major player Valeant Pharmaceuticals International Inc. (VRX) saw its shares fall as much as 20% when Democratic lawmakers made a push for a subpoena to force the company to turn over documents relating to "massive price increases" for two heart drugs it produces.

VRX would go on to close the day at $166.50 a share, which still represented a massive 16.53%, or $32.97 decline on the day. Shares ended Friday's session last week at a price of $199.47 and opened Monday at $196.71.

The major drop can be attributed to several factors including investor fear regarding the biotech sector as a whole and concerns over the company's business model, but it seems that the requested subpoena was the tipping point for the selloff.

Democrats on the U.S. House Oversight and Government Reform Committee have all signed a letter sent to their chairman, U.S. Rep. Jason Chaffetz from Utah, asking him to subpoena the company. The democrats also asked that the company's CEO J. Michael Pearson be invited to testify next week at a hearing regarding drug prices. The main reason behind the ordeal is that the group of Democrats are looking for information on two specific drugs that are used to treat heart conditions that have seen major jumps in price as of late.

In other news regarding the company and its CEO, Pearson sent a letter to his employees Monday in an effort to reassure his employees that the company's business model and fundamentals are sound. There have been concerns that have come about over whether Valeant will be able to deliver growth in a potentially harsh regulatory environment down the road. Fears that new legislation could threaten the company's ability to raise prices, which many think the company is dependent on doing to grow.

To calm these concerns and fears, Pearson pointed out that the company projects nearly a third of its 2016 business will come from international sources, adding that Valeant expects continued high single-digit to low double-digit growth moving forward. In his letter, Pearson also attempted to quiet concerns over Valeant's exposure to U.S. government price reimbursements, stating that the company only relies on the reimbursements for approximately 15% of its total revenue.

Bottom Line

It's no secret that the biotech industry is under a great deal of pressure, and clearly one of its biggest companies is feeling those pressures directly. Despite his attempt to quiet fears and concerns towards the company, Pearson could not stop the stock's slide Monday, and likely will not be able to stop further decline moving forward, especially if the subpoena is granted and the court hearing goes poorly.

Valeant currently holds a Zacks Rank #3 (Hold), but as the industry as a whole continues to struggle, and the company itself faces legal pressures, that ranking could be on the move. Investors should be sure to keep a close eye on what comes of the subpoena request in the coming time, in addition to keeping an eye on the biotech industry as a whole.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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