Valeant Files Overdue Annual Report, Makes Sweeping Board Changes--Update
April 29 2016 - 1:30PM
Dow Jones News
By Michael Rapoport and Jacquie McNish
Valeant Pharmaceuticals International Inc. filed its
long-delayed annual report and further overhauled its board Friday,
resolving the company's looming danger of debt default and
positioning it to aim for a fresh start after months of concerns
over its accounting and business practices.
But the Canadian drugmaker disclosed a variety of new and
broadened regulatory investigations, in addition to the Securities
and Exchange Commission probe it already faces -- indicating it
isn't out of the woods yet.
Valeant said its danger of default was "cured in all respects"
by its 10-K annual report filed with the SEC early Friday. The
report, originally due in February, had been delayed as Valeant
sorted out its financials in the wake of an internal investigation
into its now-ended relationship with mail-order pharmacy Philidor
Rx Services LLC. The failure to file violated Valeant's borrowing
agreements, and the company's banks and bondholders could have
accelerated the company's payments on billions of dollars in debt
if it hadn't filed the report by late May.
Investors sent Valeant's stock lower Friday, with shares falling
5.7% to $33.23. The stock has plunged more than 85% from its high
last August.
Valeant reaffirmed that its internal investigation hadn't found
any significant financial problems beyond a previously planned
restatement of past earnings, after the company found it had booked
$58 million in revenue through Philidor too early. The restatement
dented its 2014 net income by about $33 million, or 9 cents a
share, the company said, and its first-quarter 2015 net income by
$24 million, or 7 cents a share.
Valeant also said its loss for the fourth quarter of 2015 was
wider than it initially reported in March. The fourth-quarter loss
was $385.9 million, compared with the previously reported $336.9
million for the quarter and a restated profit of $512.5 million in
the year-ago fourth quarter. Valeant posted a 2015 loss of $291.7
million, compared with a restated profit of $880.7 million for
2014.
Valeant also outlined investigations from state regulators in
North Carolina and New Jersey that hadn't previously been
disclosed. North Carolina is investigating Valeant over its pricing
decisions and patient assistance programs, and New Jersey is
investigating Valeant's relationship with Philidor. The Wall Street
Journal has reported Philidor used aggressive tactics to get
insurers and pharmacy-benefit managers to pay reimbursements for
its often high-price drugs.
In addition, federal prosecutors in New York and Massachusetts,
who were already investigating Valeant over patient assistance and
pricing, are now also looking at the Phildor relationship and
information Valeant provided to Medicare and Medicaid Services
about drug discounts.
The 10-K also shed some light on the transactions with Philidor
that led to the restatement. The filing said they included
"fulfillment of unusually large orders with extended payment terms
and increased pricing, " as well as an emphasis on delivering
product before Valeant purchased an option to buy Philidor, a move
that changed the timing of when Valeant could record
Philidor-related revenue. Valeant said its procedures governing
"nonstandard revenue transactions" such as the Philidor
transactions need improving.
Valeant said it intends to hire more staff to "enhance" its
accounting and finance capabilities, to address problems with its
"tone at the top" and pressure on executives to hit performance
targets. The company has alleged "improper conduct" by Howard
Schiller, its former financial chief, and Tanya Carro, its
corporate controller who was placed on administrative leave. Mr.
Schiller has said he did nothing improper. Ms. Carro and a
representative for Mr. Schiller couldn't immediately be reached for
comment Friday.
Separately, Valeant nominated three independent directors for
election to its board, as the company looks to change the tone
among its top brass. The new nominees are Argeris Karabelas, a
former drug-industry executive and a partner at life-sciences
venture-investment firm Care Capital LLC; Russel Robertson, a BMO
Financial Group executive and former auditor; and Amy Wechsler, a
New York dermatologist.
The move follows Valeant's appointment earlier this week of
Perrigo Co. CEO Joseph Papa as its new leader, replacing Michael
Pearson. It also comes on the heels of other board changes,
including the appointment of major Valeant investor William Ackman
as a director in March.
If Valeant's proposed slate of directors is elected at the
company's annual meeting June 14, only two directors who were on
Valeant's board a year ago, Robert Ingram and Robert Power, will
remain and the board will shrink to 11 members from 14. Five
current directors -- including Mr. Pearson and Mr. Schiller, who
refused a request from Valeant's board to resign as a director --
won't stand for re-election.
Besides Mr. Papa, Mr. Ingram, Mr. Power, Mr. Ackman and the
three new directors, the company's slate includes four other
independent directors named to the board in the past year --
Frederic Eshelman, Stephen Fraidin, Thomas Ross Sr. and Robert
Hale, who will represent big Valeant investor ValueAct Capital
Management LP as ValueAct's president, Mason Morfit, leaves the
board.
The 10-K filing and board changes cap a busy week for Valeant,
which also included Mr. Papa's appointment and a hearing Wednesday
where Messrs. Pearson, Ackman and Schiller were grilled by senators
upset at the company's past practice of dramatically boosting the
prices of some drugs. Mr. Ackman signaled at the hearing that board
changes were afoot and promised Valeant would take swift action to
reduce prices on some drugs.
Anne Steele contributed to this article
Write to Michael Rapoport at Michael.Rapoport@wsj.com
(END) Dow Jones Newswires
April 29, 2016 13:15 ET (17:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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