It was a wild ride for Toronto’s main index this past week as what was Canada’s largest company by market cap, Valeant Pharmaceuticals Intl Inc. (VRX:TSX), woke up Monday to a significant storm.

Democrats on the U.S. House of Representatives committee on oversight and government reform sent a letter to the committee’s Republican chairman seeking a subpoena that would force Valeant, to turn over documents tied to the U.S. price hikes of two heart drugs. 

At one stage Valeant’s shares traded down 16% before recovering a portion of the losses. The pharma sector itself was off over 10% on Monday alone. Well respected fellow Canadian Pharma stock Concordia Healthcare Corp (CXR:TSX) which, like Valeant, has an aggressive acquisition strategy, whereby it manages and acquires legacy pharmaceutical products and acquires and develops orphan drugs, fell more than 25% on Monday.

At issue for both was the practice of hiking drug prices after acquisition. Reports state that Valeant’s heart drugs, Nitropress and Isuprel, saw a 212% and 525% price increase after Valeant acquired them. 

Politicians have chimed in on the issue as Hillary Clinton’s tweet this week received significant attention: “Price gouging like this in the specialty drug market is outrageous.”

Clearly, sky-rocketing drug prices is an area of focus for a number of Democratic presidential-hopefuls and raises a spectre of uncertainty for companies selling into the U.S. market at present.

Concordia is also facing backlash from investors who subscribed to the company’s recent US$520 million financing which was priced in the CDN$88.80 range. The financing closed last week and the company’s shares have already dropped 35%. While Concordia is up over 23% year-to-date and have been a tremendous success story over the past several years, these are not the best time to be a new owner of the company’s shares. 

There have been rumblings that investors in the recent offering may try and use the so-called material out clause to get them out of their purchases. This would be a very rare occurrence, but those feeling burned are wondering aloud what they can do or if anything can be done. 

We would suggest that this is the risk of subscribing to a financing which prices in a current price-to-earnings multiple in the range of 100. The valuations were extremely rich. While the promise of growth is enticing, we have now witnessed firsthand the type of violent drop that can occur in a stock that is “priced to perfection” when the company hits a bump in the road. It is not pretty. 

The silver lining here is that asset prices have come down and we are starting to see value once again from a market that offered little by early to mid 2015. While issues may be on the horizon for U.S. exposed pharma stocks, those exposed to other regions including Europe (such as our top pick in the sector), could be trading at bargain levels.