Few words can spark a massive sell-off in a stock like the word “investigation.” Here’s a look at three big-name stocks that are currently dealing with some form of investigation of their business practices: Valeant (VRX), Mallinckrodt (MNK) and SunEdison (SUNE).
VRX’s woes have gotten a lot of headlines because of the company’s high-profile investors like Bill Ackman. VRX’s problems started back in September when Democratic members of Congress began calling for VRX to be subpoenaed over “massive” price hikes for two of its heart drugs. Valeant then confirmed in October that it had been subpoenaed by U.S. prosecutors who were investigating the company’s patient assistant programs, drug pricing and distribution.
Then, in a game-changer, on October 21, Citron Research accused VRX of using shady specialty pharmacies, such as Philidor, to inflate revenues. The research report sparked a 40% sell-off in VRX.
So far in 2016, things have gone from bad to worse. In February, Valeant disclosed an ongoing SEC investigation. It also withdrew its 2016 guidance. Finally, just last week, VRX cut its 2016 revenue guidance by 12 percent. VRX also warned investors that a delay in its annual earnings report could trigger a debt default. The latest piece of news sent Valeant shares tumbling another 53%.
In the wake of the VRX publicity, Citron released a new note last week pleading its case that MNK “makes Valeant look like a bunch of choirboys.”
Citron pointed out that MNK has never properly tested its seizure drug Acthar (which costs $30,000 per vial) against its much cheaper alternative drug, Synacthen.
MNK acquired Acthar via a buyout of Questcor in 2014. Citron points out that Questcor hiked the price of Acthar from $1,650/vial to $23,000/vial back in 2007. Synacthen’s price also jumped from $33.05/vial to $680/vial in Canada just last year.
In company filings, MNK long ago disclosed multi-agency government investigations into Questcor. This week the company reiterated that it is cooperating fully with the investigations. The market certainly seems worried about what the investigations might turn up. Through yesterday, Mallinckrodt shares shares were off 15% in the last five days (even after a 7% bounce-back on Monday).
Things have been bad enough for solar stocks in the past year without throwing a financial investigation into the mix. However, that’s exactly what SUNE shareholders are dealing with at the moment. On Feb. 29, SUNE announced that it was launching its own internal investigation into its finances. The investigation is a response to accusations from former executives about the accuracy of the company’s “liquidity position.”
The stock traded as high as $33 per share during the summer of 2015. But SUNE stock has taken a savage hit since then, and when news of the investigation hit, it dropped to around $1.50. It has since bounced back to above $2. But shareholders hoping for a quick resolution to the investigation were once again disappointed last week.
On March 16, SUNE said that it had identified “material weaknesses in its internal controls over financial reporting.” As a result of these finding, the annual reports for both SUNE and yieldco TerraForm Power (TERP) will be delayed beyond the March 15 deadline.
At least so far, SUNE’s financials are only getting probed by the company’s own fingers. However, SUNE’s share price will certainly remain under pressure until the investigation has concluded.
Disclosure: As of this writing, Wayne Duggan had no positions in any of the stocks mentioned.