08/18/2016 04:11 EDT | Updated 08/18/2016 04:59 EDT

Valeant Pharmaceuticals Accused Of Vast Fraud By T. Rowe Price

The "fraudulent scheme" allegedly cost investors billions of dollars.

MONTREAL — A U.S. mutual fund firm that used to be one of Valeant's largest shareholders is suing the embattled Quebec drugmaker for allegedly pursuing "a fraudulent scheme" that ultimately cost investors billions of dollars.

T. Rowe Price filed the lawsuit against Valeant, its former chief executive and several current and former executives.

"This case arises from a fraudulent scheme by Valeant and its top executives to use a secret pharmacy network, deceptive pricing and reimbursement practices, and fictitious accounting to shield the company's branded drugs from generic competition and artificially inflate the company's revenues and profits," said the 200-page statement of claim filed Monday in the United States District Court in New Jersey.

Once a fervent defender and third-largest investor, T. Rowe Price sold most of its shares in May.

Valeant Pharmaceuticals International Inc. signage is displayed outside the company's headquarters in New Jersey, Aug. 9. (Photo: Ron Antonelli/Bloomberg via Getty Images)

Valeant didn't immediately respond to a request for comment.

The drugmaker's shares, which rose early Thursday on an announced deal between the company and its lenders, fell on word of the lawsuit.

They lost 3.1 per cent at C$37.30 in afternoon trading on the Toronto Stock Exchange.

A year ago, Valeant shares (TSX:VRX) were worth more than C$300 each, prior to a series of problems that began to emerge last September and continued well into 2016.

Earlier in the day, Valeant said it was getting a much-needed break from its lenders, but at the cost of higher interest rates and additional one-time fees.

A trading post on the floor of the New York Stock Exchange displays the Valeant Pharmaceuticals logo. (Photo: Richard Drew/AP)

The company said it had received lender approvals that give Valeant more flexibility to borrow money and sell assets — part of the company's plan to reduce its debt load.

Canaccord Genuity analyst Neil Maruoka wrote in a research note that the developments were positive news on balance "but we believe that the company must still divest assets and execute operationally to fully turn the ship around."

RBC Dominion Securities analyst Douglas Miehm took a similar view, noting that Valeant was previously limited to selling up to four per cent of its assets annually.

Valeant has said it wants to sell up to US$8 billion of assets, which could include business units or product lines.

The cost of winning lender concessions, according to Miehm's calculations, is about US$28 million or eight cents per share in one-time fees and a US$54-million increase to annual interest expenses, on top of higher rates Valeant accepted in April.

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