Valeant Leads Canadian Stocks Lower Amid U.S. Pricing Scrutiny

  • Drugmaker recently received subpoenas from U.S. prosecutors
  • Valeant, Concordia topped S&P/TSX for year before declining

Valeant Pharmaceuticals International Inc., at one point this year the largest stock in Canada, has come down a few pegs as the drugmaker’s pricing decisions face the scrutiny of U.S. lawmakers.

Valeant dropped 5.4 percent on Thursday, touching a February low and extending its loss from an August peak to about 37 percent. The Laval, Quebec-based company led declines in the benchmark Canadian equities index after disclosing it had received subpoenas from the U.S. Attorney’s Office in Massachusetts and the Manhattan U.S. Attorney’s Office seeking information on its patient assistance programs, drug distribution and pricing decisions.

The Standard & Poor’s/TSX Composite Index fell 46.36 points, or 0.3 percent, to 13,828.97 at 4 p.m. in Toronto, for the third decline in four days. The benchmark Canadian equity gauge is down 5.5 percent for the year, the poorest showing among 24 countries except for Singapore and Greece.

“Given the recent political and media scrutiny of pharmaceutical pricing practices and the impact this has had on the specialty pharmaceutical sector, we will be focused on any additional disclosure that management provides related to price versus volume growth,” said Alan Ridgeway, analyst at Scotia Capital in a note to clients.

Ridgeway lowered his price target for the stock to C$250 from C$295 due to the general declines in the pharmaceutical industry ahead of Valeant’s third-quarter earnings results expected Oct. 19. He maintained a sector outperform rating, the equivalent of a buy.

Biotechnology companies, one of the best-performing groups in the S&P 500 this year, plunged into a bear market after Democratic U.S. presidential candidate Hillary Clinton raised concern about possible “price gouging” of prescription drugs in a tweet Sept. 21. Valeant slumped 22 percent in September, the biggest monthly decline since 2007.

The drugmaker had reached a record C$346.32 on Aug. 5 and, along with smaller peer Concordia Healthcare Corp., were the two best-performing stocks in the S&P/TSX as late as Sept. 20. The two companies competed with global peers in an acquisition frenzy in the first half of the year, pursuing a growth-by-acquisition strategy.

Valeant, with a market cap of more than $70 billion, is now jockeying with Bank of Nova Scotia for the title of third-largest stock in the benchmark index, behind Royal Bank of Canada and Toronto-Dominion Bank.

Health-care stocks remain the best-performing industry in the broader S&P/TSX this year with a 22 percent advance, after paring a gain of as much as 94 percent earlier in the year.

Prices for Canadian stocks remain expensive relative to global peers. The MSCI All-Country World Index, a measure of developed and developing markets, currently trades at about 17.3 times earnings. The index’s valuation dropped to as low as about 16 at the end of September, the lowest since October 2014. By contrast, the price-to-earnings ratio of the S&P/TSX sits at 20.1, after falling to as low as 18.9 in September.

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