SEC raises concerns about Valeant's use of 'Non-GAAP' measures

(Reuters) - The Securities and Exchange Commission is concerned about the way Canadian drugmaker Valeant Pharmaceuticals (NYSE:VRX) International Inc (TO:VRX) has been disclosing its "non-GAAP" financial measures, regulatory filings showed on Tuesday.

The SEC has questioned Valeant's practice of stripping away acquisition-related expenses from its "non-GAAP" or adjusted metrics, given that the drugmaker had been fueling growth through frenzied deal making.

The company is facing mounting scrutiny by members of Congress, prosecutors and regulators over its drug pricing, business practices and accounting, issues that have led to its share plummeting nearly 90 percent since August.

In multiple letters, the SEC said Valeant's management is in possession of all the facts and urged for adequate and accurate financial disclosures.

"We are concerned with your overall format and presentation of the non-GAAP measures and believe revisions to your future earnings releases and investor materials are appropriate," the SEC said in a letter to the company in February.

In response, the Laval, Quebec-based company defended its use of non-GAAP measures but agreed to make changes in its disclosures.

The SEC also questioned Valeant's disclosure of the tax effects of the costs it stripped out of its non-GAAP measures, calling the strategy "potentially misleading".

Non-GAAP measures are metrics that don't comply with generally accepted accounting principles, or GAAP, the standard set of accounting rules in the United States.

Typically, they exclude non-cash and non-recurring items from a company's results and are designed to present a truer reflection of performance.

This correspondence, which demonstrates the SEC's lack of comfort with Valeant's reporting, could add gravity to the multiple investigations the company is currently embroiled in, Wells Fargo's David Maris said, cutting his target price to a range of $25-$30 from $27-$31.

The troubled drugmaker filed its 2015 financial report last month, allaying concerns about a possible default on its debt of more than $30 billion.

The company missed an original March 15 deadline, citing an in-house review of its accounting practices. The probe found problems dating back to 2014.

Valeant's U.S.-listed shares closed down marginally at $26.11, while the stock ended down nearly 5 percent at C$34.29 on the Toronto Stock Exchange.

The company said late on Tuesday it was reviewing its compensation policies to reflect the current environment.

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Among the amendments that may be considered include adding qualitative performance measures to incentives, as well as introducing relative total shareholder return measures to long-term incentives for top executives, Valeant said.