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Valeant Pharmaceuticals is being investigated by the US Securities and Exchange Commission in connection with a previously undisclosed probe, a company spokeswoman said. Further details are not known, but the investigation is not connected to another earlier SEC inquiry into possible securities law violations by Salix Pharmaceuticals, which Valeant acquired last year, concerning inventory accounting.

The disclosure comes amid accelerating difficulties at Valeant.

This morning, the drug maker announced that Michael Pearson is returning as chief executive after taking a medical leave for pneumonia. But the drug maker also withdrew financial guidance for 2016 that was issued less than three weeks ago and has delayed filing recent financial results, which would have included news of an SEC subpoena, the spokeswoman noted.


The combination of events rattled investors, who sent Valeant shares plunging more than 18 percent, although Wall Street already had the jitters over the guidance withdrawal. The stock had fallen nearly 10 percent on that earlier bit of news. Stock analysts quickly responded by lowering their ratings and Moody’s Investor Service placed the company’s credit under review for a downgrade.

“The larger problem with Valeant shares, beyond management credibility (or namely lack thereof) in our view is the unknown,” wrote Piper Jaffray analyst David Amsellem in a note this morning. “Put another way, are there other issues, either additional accounting issues, or malfeasance, or both, that could be uncovered?”


Indeed, Valeant also faces investigations from the US attorneys’ offices in Massachusetts and New York, and the latest disclosures follow months of speculation about Valeant accounting.

Last fall, controversy erupted over the drug maker’s use of a specialty pharmacy, Philidor Services Rx, and its aggressive tactics to make sure that insurers paid for brand-name Valeant drugs instead of lower-cost generics. Short sellers – investors who bet against Valeant stock – alleged the company distorted revenues, undermining confidence in the company.

In response, the Valeant board quickly formed a committee to probe the allegations and later declared that nothing illegal took place. Philidor has since closed, but the episode raised questions about Valeant management, among them, its ability to maintain sales of key dermatology drugs, among others. The series of events essentially took Valeant from bad to worse.

At the time, Valeant was already one of the pharmaceutical industry’s poster children for high prescription drug prices. By acquiring medicines and then jacking up price tags — sometimes, by hundreds of percentage points — the company invited widespread criticism that has triggered congressional hearings and vows from some presidential candidates to reign in drug makers.

To make up for the Philidor loss, Valeant struck a distribution deal with Walgreens Boots Alliance, the pharmacy chain, to sell drugs at a discount. Whether this will succeed is unclear. Meanwhile, CVS Caremark, a big pharmacy benefits managers — which negotiates contracts for drug coverage for companies, government agencies, and unions — wants to limit reimbursement for Jublia, Valeant’s big-selling drug for treating toenail fungus.

Investors are also concerned about a patent challenge by a generic rival to a drug called Xifaxan. Nomura Securities analyst Shibani Malhotra forecast the drug, which treats irritable bowel syndrome and hepatic encephalopathy, would generate 12.5 percent of Valeant sales this year. In the first nine of months of last year, Valeant sales totaled $7.6 billion, so this could be a sizeable product. Although a challenge was expected, she foresees risk that a challenge may succeed.

“We are concerned by Pearson’s return,” wrote Wells Fargo analyst David Maris in an investor note. And “Valeant’s withdrawing guidance should be an indication to investors just how uncertain and changing Valeant’s business is.”