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SEC Begins Inquiry at Valeant

Stock sales after a drug trial and option grants are under review, the company says.

September 12, 2006|Daniel Yi | Times Staff Writer

Valeant Pharmaceuticals International disclosed Monday that federal regulators had launched an inquiry into stock trades that were made this spring when the Costa Mesa company released results of a drug trial.

In a statement, Valeant said the Securities and Exchange Commission had also asked for information about Valeant's efforts to recover controversial bonuses paid to company founder and former Chief Executive Milan Panic. He was ousted in 2002 amid allegations that he was mismanaging the company.

Regulators have also asked about Valeant's stock option grants, the company said.

Valeant executives declined to be interviewed, and SEC officials would not comment.

In a statement, Valeant said the SEC "is conducting an informal inquiry regarding events and circumstances surrounding trading in the company's common stock and the public release of data" from a pivotal trial of Viramidine.

Viramidine is a drug developed by the company for the treatment of hepatitis C, a virus that causes liver damage.

On March 21, Valeant announced that Viramidine's test data showed a low effectiveness in treating hepatitis C. The company's shares plunged 14.2% to $16.03.

Andrew Stoltmann, a Chicago-based securities attorney, said regulators were probably looking for evidence of insider stock trading.

"I don't think there is any question with that fact pattern," he said.

Andrew McDonald, a stock analyst with ThinkEquity Partners in San Francisco who has a "buy" rating for Valeant, said the SEC routinely looks into companies when share prices show large gains or drops after an announcement.

He said the disappointing test results for Viramidine did not come as a surprise to those who had been following the drug's development closely.

"My guess is that it is just routine," McDonald said of the investigation.

The federal agency is also looking into Valeant's efforts to recover $33 million Panic received in bonus pay in 2002.

Last month, the two parties announced they had reached a $20-million settlement, but Panic had failed to make his first payment of $8 million on time, Valeant's statement said.

Panic, 76, said the payment was three days late because of additional concerns imposed at the last minute by Valeant.

"I made the payment, they cashed the money," said Panic, who founded the company formerly known as ICN Pharmaceuticals in 1959. "These people are not to be trusted."

Panic, who briefly served as prime minister of Yugoslavia in the 1990s, has been battling with Valeant's board ever since he was ousted.

The company's former board awarded Panic $33 million in bonus pay for his work spinning off a division of the company. But shareholders protested that the payment was too rich, leading to Panic's resignation and the appointment of a new board.

Panic said he deserved every penny he made, saying he led a profitable company. He accused those who ousted him of profiteering while the company struggled financially.

"If I hadn't started this company," Panic said Monday, "these people wouldn't have jobs."

Valeant has also joined the growing roster of companies under scrutiny for stock option practices. The company said the SEC is looking into options Valeant has granted since Jan. 1, 2000.

Options are the right to buy a company's stock at a certain price by a certain date in the future. Regulators are examining more than 100 companies to determine if the grant date was "backdated" to maximize profits for the recipients.

In March, Panic sued Valeant's directors in an Orange County Superior Court, accusing them of manipulating stock prices with a series of misleading assessments about the company to enrich themselves. As part of the $20-million settlement reached in August, Panic had agreed to drop that suit.

Valeant's stock rose 2 cents Monday, to $19.53.

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daniel.yi@latimes.com

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