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As shareholders of Valeant Pharmaceuticals (BHC -25.04%) would likely testify, little has gone right for the former megacap pharmaceutical company since last summer.

Shares of Valeant have essentially dropped 90% from their all-time high on account of questionable pricing practices and the mountain of debt being lugged around on its balance sheet.

Its problems really came to a head last fall, when the pricing practices of privately held Turing Pharmaceuticals came into question. Turing, which was led by now-former CEO and "Pharma Bad Boy" Martin Shkreli, attempted to hike the price of a 62-year-old rare-disease drug by more than 5,500% overnight without making any formulary or manufacturing changes. This drew the ire of lawmakers on Capitol Hill, and it thrust unwanted attention on other pharmaceutical companies that engaged in similar practices, including Valeant Pharmaceuticals.

The other problem is the $30.8 billion in debt Valeant ended the second quarter with. When Valeant had exceptional pricing power, it could easily access capital and forge new deals. Its lenders had little to worry about, as the EBITDA growth it was generating from these new deals more than covered the interest on its debt. However, when lawmakers began looking into Valeant's pricing practices, the wheels fell off Valeant's M&A growth machine, and its access to capital dried up. Today, Valeant is on the defensive and looking to jettison non-core assets that generate about 20% of its annual sales and, cumulatively, around $725 million in annual EBITDA. Valeant's management believes it could net approximately $8 billion from the sale of these non-core assets.

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Valeant attempts to make things right

Valeant's game plan to fixing its seemingly dire situation is pretty straightforward. It's working to reduce its debt levels while simultaneously trying to get back in the good graces of its drug distributors, insurers, and consumers.

Based on a press release issued late last week, Valeant seems to be doing what it can to douse the fire that began after it hiked the prices of acquired cardiovascular therapeutics Nitropress and Isuprel. Both drugs were acquired from Marathon Pharmaceuticals in 2015, and according to Reuters, Valeant almost immediately raised their prices by 720% and 310%, respectively, even though it made no changes to the formulation or manufacturing process of either drug.  

The press release from Valeant notes that it has made significant progress in getting discounts and rebates in place for hospitals throughout the country to access Nitropress and Isuprel. Through Sept. 16, Valeant had contracted with 13 of the 14 group purchasing organizations (GPO) that represent most hospitals, health plans, and long-term care facilities. These GPOs should cover more than 90% of all hospitals, resulting in rebates that range from at least 10% to as high as 40% depending on the purchase volumes of the relevant drugs.

Since Nitropress and Isuprel were the drugs that led to Valeant's public scolding, the fact that it's taking steps to correct pricing "mistakes," as now-former CEO J. Michael Pearson put it, is a good thing.

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Is Valeant still playing with fire?

However, other reports suggest that Valeant could be falling back into its old habits (or that it simply never abandoned them in the first place).

According to David Maris, the covering analyst at Wells Fargo, Valeant recently raised the list price of three of its products by 9.9%, based on Medi-Space CDI data. Granted, these products are nominal revenue-producers, with a combined $1.2 million in second-quarter sales. But the increase, Maris noted, was odd in that the company didn't round up to an even 10%. Maris presumed that Valeant could be trying to grow its bottom line by raising prices (as it's been doing for years) while staying lawmakers' radar by keeping its price hikes in the single digits.

In other instances, hospital executives claim that Valeant hasn't followed through with the discounts it had promised on Nitropress and Isuprel. As recounted by Bloomberg last week, some hospitals have claimed that Valeant's contract offer wasn't desirable. In other instances, hospitals either received no response from the drugmaker or were unaware that they needed to negotiate with Valeant to get a reduced or rebated price on both drugs. Of the 23 hospital systems and purchasing groups contacted by Bloomberg, nearly half (11) weren't getting a lower price on either one or both drugs.

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Aggressively raising the price of its therapies is a dangerous game for Valeant. It's one thing to provoke the ire of the public or insurers, but it's entirely different to draw the scrutiny of lawmakers and become the subject of multiple criminal investigations.

One such probe involves Valeant's possible relationship with now-former drug distributor Philidor Rx Services. If Philidor didn't disclose its tight business relationship with Valeant to insurers, then it may have been playing favorites instead of remaining a neutral party. This, in turn, could have led Valeant's scripts to be written far more often than cheaper therapeutic alternatives.

If found guilty, Philidor's executives could be disciplined. While Valeant's execs are in the clear, the company itself could be liable for a large fine or even sale restrictions. Therefore by raising its prices, or failing to deliver the discounts and rebates it has promised, Valeant could be digging itself into an even deeper hole.

Valeant continues to remain a risky investment opportunity as it attempts to deal with a debt-riddled balance sheet, weakness in its core dermatology business, and uncertainty tied to possible criminal investigations. Until we have more clarity, Valeant's stock is probably best avoided.