After two and a half testy years, Canadian pharmaceutical company Concordia International Corp., better known as “Baby Valeant,” has proposed a restructuring that will erase US$2.4-billion of its debilitating debt load and all but wipe out the shareholders who went on its wild ride.
Much like Valeant Pharmaceuticals International Inc., Concordia saw its stock skyrocket though 2014 and much of 2015, climbing to $110 from $6. The Oakville, Ont.-based company won investors over by adopting Valeant’s strategy of growing through acquisitions and hiking drug prices.
At its peak, Concordia was worth $5.7-billion. The rise came to a crashing halt in September, 2015. That month, U.S. lawmakers turned their attention to drug “price gouging,” after examples of egregious price increases came to light. Hillary Clinton even tweeted about the issue, promising to tackle it if elected president. Concordia’s shares plummeted 72 per cent in a little more than a month.
The upheaval hasn’t let up since. Concordia funded its acquisitions with debt, and as soon as its business model came under scrutiny, the road map to higher revenues that would help shoulder this burden was swept out from under it. In the end, a majority of debtholders agreed the only way to fix things was to restructure, to the detriment of existing shareholders.
Under the proposed restructuring, secured debtholders, who currently hold US$2.2-billion worth of debt, will get some cash as well as US$1.4-billion in new secured debt. Unsecured debtholders, who currently hold US$1.6-billion worth of bonds, will swap their debt for some common shares.
Existing shareholders, meanwhile, will be left with next to nothing, owning just 0.35 per cent of the company’s outstanding shares if the restructuring is approved. Going forward, 88 per cent of Concordia’s equity will be held by unnamed investors who subscribe to a new US$587-million private placement, the proceeds of which will be used to pay the secured creditors some cash.
In all, the deal would reduce Concordia’s outstanding debt by approximately US$2.4-billion. It is currently backed by a majority of both secured and unsecured debtholders.
Concurrent with the restructuring, Concordia also revealed that its management team will be shaken up. Chief executive officer Allan Oberman, who joined the company in 2016 and previously ran the Americas divisions of Teva Pharmaceuticals, is leaving. He will be replaced by Graeme Duncan, who previously oversaw Concordia’s international division.
However, it is unclear how long Mr. Duncan will lead the company. Concordia had previously announced that he was going to leave on June 30. That is no longer happening, yet he has only been named interim CEO.
Adding to the upheaval, chief corporate development officer, Sarwar Islam, is also leaving Concordia.
Concordia’s woes started piling up in September, 2015. Around the time that its stock price peaked, the company announced the US$2.1-billion acquisition of Amdipharm Mercury Ltd. (AMCo), as well as a US$520-million equity financing to help fund the deal. The takeover went through, but the following spring Concordia’s shares were still suffering and the company announced a strategic review.
By the fall of 2016, Concordia was in dire shape. That October, the company issued senior secured lien notes at a 9-per-cent interest rate – suggesting investors deemed them incredibly risky to hold. Later that month, Mr. Oberman was appointed to Concordia’s board and a week later, Concordia’s founding CEO, Mark Thompson, stepped down as chairman and chief executive.
Under Mr. Oberman, who took over as CEO in November, 2016, Concordia developed a strategy to focus on specialty generic drugs in Europe. The U.S. market, where Concordia had historically focused, has been disrupted by a host of factors, including a flood of generic-drug supply from countries such as India as well as the consolidation of wholesale drug buyers, which has increased their pricing power,
Concordia did not offer any strategy updates in its restructuring announcement, and a spokesperson declined to comment for this story.
The restructuring plan will be voted on in June, and a host of advisers were hired to work for the different parties. Morrison Park Advisors provided a fairness opinion to Concordia’s board of directors, and the board has determined the proposed deal “is in the best interests of the company and its stakeholders,” adding that the directors unanimously recommend it.