U.K. pricing investigation clouds outlook for Concordia, says Laurentian

Just a few days after the resignation of its CEO, a newly announced investigation into pharmaceutical pricing in the United Kingdom is a “slight negative” that clouds the outlook for Concordia International’s (Concordia International Stock Quote, Chart, News: TSX:CXR, Nasdaq:CXRX) future, says Laurentian Bank Securities analyst Joseph Walewicz.

This morning, Concordia International announced that the The U.K. Competition and Markets Authority (CMA) is investigating various issues in relation to the U.K. pharmaceutical sector, and Concordia’s international segment is part of the inquiry. The CMA is looking at suspicions of unfair pricing in the pharma space.

“We are working co-operatively to better understand the CMA’s position and we will continue to work constructively to resolve the matter,” said Concordia in a press release this morning. “Although Concordia has also had past discussions with the CMA regarding the supply of certain of its products in the U.K., this is the first interaction with the CMA regarding the company’s pricing. There has been speculation in the press about these issues, and this affords us the opportunity to have an objective discussion about our products and their contribution to the health care system.”

Walewicz says while this development isn’t entirely unexpected, it “further clouds” the outlook for Concordia, whose shares have fallen steadily all year against a macro backdrop that has proved difficult. The analyst says history suggests there will no speedy resolution to the matter.

“It will be a few months before we know if the CMA will proceed with a formal investigation so the nature, timing and magnitude of actions – if any – are not yet known,” he says. “The initial investigation includes information gathering, formal information requests and a review thereof, and will continue into February 2017. At that time there will be a decision whether or not the CMA will continue or close the investigation. We note that in a prior case involving Pfizer / Flynn Pharma the CMA initiated an investigation in May of 2013 – the case is still open, with a final decision expected in November 2016. Based on this, we do not expect any imminent news on this, but we will be following the progress of the investigation.”

In a research update to clients today, Walewicz maintained his “Reduce” rating and one-year price target of (U.S.) $3.50 on Concordia International.

Last Friday, Concordia announced that CEO Mark Thompson would step down after the company finds a suitable successor. Earlier this week, Walewicz said “substantial leverage and near term challenges” at Concordia could present challenges in bringing on a new CEO.