Investors No Longer Fazed by Bad News at Valeant

| About: Valeant Pharmaceuticals (VRX)

Valeant Pharmaceuticals (NYSE:VRX) is in the news again. Seems like every time I see Valeant in the news something’s going wrong there. Of course, that’s not the reality. It’s just that bad news gets noticed more than good. Monday and Tuesday, there were two pieces of bad news for Valeant, although based on the market’s meager reaction, neither seems to have been much of a shock to investors.

Tuesday’s bit of bad news was that Valeant’s investigational hepatitis C therapy, viramidine, failed its second Phase 3 trial, demonstrating inferior efficacy compared with ICN’s mainstay ribavirin (pegylated interferon was used with both therapies).

Monday, we learned that the SEC had launched an informal inquiry of the firm, specifically regarding stock trades made this spring around the time of the announcement of negative results of the first viramidine Phase 3 trial. It’s also looking into Valeant’s efforts to recover a $33 million bonus paid to former Chairman and founder Milan Panic in 2002, when he left the company, and the company’s stock option grants since 2000.

These stories sounded eerily familiar to me, so I decided to refresh my memories of the company by looking back into their past a bit. Thanks to the New York Times, LA Times and BusinessWeek archives, here’s a blast from Valeant’s (ICN’s) past.

January-May 1987:
ICN holds a news conference in January touting the Phase 3 clinical results of ribavirin as treatment for advanced HIV disease, its lead indication. By May 1987, Congress was taking testimony from the FDA and charging ICN with lying to the public about the benefits of ribavirin.

Two NDAs for ribavirin to treat AIDS are rejected by FDA, and a third NDA is voluntarily withdrawn by ICN (Viratek). The company develops a reputation as arrogant with the FDA and overly concerned with investor’s perceptions. By February 1990, the company ceases efforts to win approval for the drug as an AIDS therapy. The company’s financial position and credibility are severely damaged, and the company is under investigation by FDA, the US Congress, the Securities and Exchange Commission and a federal grand jury, and is the target of a class-action lawsuit by investors.

October 1991: ICN ends a four-year SEC investigation of the company by agreeing to a settlement with the agency. No fines or other sanctions are levied against the company, and it admits no wrongdoings.

mid-1994: ICN files an NDA for approval of ribavirin as monotherapy in hepatitis C.

November 1994:
FDA issues “not approvable” decision for ribavirin as monotherapy for hepatitis C.

December 1994: ICN issues a press release stating that an amended application for ribavirin as combination therapy will be submitted. The release does not mention the “not approvable” letter specifically.

February 1995: ICN discloses the FDA not approvable letter for ribavirin monotherapy to the public. Later, it comes to light that Milan Panic, chairman of ICN, sold $1.24 million in stock of ICN after the FDA rejection in late 2004.

Early 1995:
SEC opens investigations into ICNs handling of public disclosure of ribavirin and stock trading by Milan Panic.

May 1996:
A federal grand jury requests materials going beyond those requested by the SEC.

June 1998: Ribavirin is approved by FDA for combination (with interferon alpha-2b) therapy in hepatitis C. It soon becomes the standard of care.

August 1998:
SEC drops the insider trading investigation following two federal court decisions in other cases that reject the SEC’s interpretation of the securities laws as applied to insider trading.

September 1998:
SEC begins enforcement action against ICN for its alleged failure to disclose adverse material information to its investors, re: ribavirin.

August 1999: SEC files compliant in federal district court alleging that ICN failed to notify investors promptly that its application to market ribavirin to treat hepatitis C had been rejected by FDA. Civil suit seeks damages against Panic and two other executives of the company.

November 2002:
ICN settles the lawsuit filed by the SEC, agreeing to pay civil penalties of $1 million. Milan Panic is fined $500,000. ICN does not admit or deny the allegations.

November 2003:
ICN changes its name to Valeant. “Our new name embodies the core principles that underpin this newly invigorated pharmaceutical company,” said Robert W. O’Leary, Valeant’s Chairman and Chief Executive Officer. “In recent months, our company has been entirely rebuilt - and re-energized - to reflect the principles and qualities of our people.”

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