Valeant Default Fears 'Cured' -- WSJ
April 30 2016 - 3:03AM
Dow Jones News
Troubled drug firm files its long-delayed annual report
By Michael Rapoport and Jacquie McNish
Valeant Pharmaceuticals International Inc. filed its
long-delayed annual report and further reshaped its board Friday,
defusing the danger of a debt default and positioning the company
for a fresh start after months of concern over its accounting and
business practices.
But the Canadian drugmaker also disclosed 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 default worries were "cured in all respects" by
its 10-K annual filing with the SEC. The report, originally due in
February, was delayed as Valeant sorted out its financials in the
wake of an internal probe into its now-ended relationship with
mail-order pharmacy Philidor Rx Services LLC. The failure to file
violated Valeant's borrowing agreements, and banks and bondholders
could have accelerated its payments on billions of dollars in debt
if it hadn't filed the report by late May.
Valeant shares traded down 5.4% to $33.36 on Friday. The Laval,
Quebec-based company's stock has fallen more than 85% from its high
last August on concerns over its practice of dramatically boosting
the prices of its drugs, as well as its accounting for its
relationship with Philidor.
Valeant reaffirmed that an internal investigation hadn't found
any significant financial problems beyond a previously planned
restatement of earnings; the company had determined it prematurely
booked $58 million in revenue through Philidor. The restatement
dented its 2014 profit by about $33 million, or 9 cents a share,
the company said, and its first-quarter 2015 profit by $24 million,
or 7 cents a share.
The drug company also said its loss for the fourth quarter of
2015 was wider than it initially reported in March. The loss was
$385.9 million, compared with the previously reported $336.9
million and a restated profit of $512.5 million in the year-earlier
fourth quarter. Valeant posted a 2015 loss of $291.7 million,
compared with a restated profit of $880.7 million for 2014.
Valeant outlined investigations from state regulators in North
Carolina and New Jersey that hadn't previously been disclosed.
North Carolina is investigating the company 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.
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 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 affected
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. 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 in the week of
Perrigo Co. chief 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 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 independent nominees, 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 congressional
hearing Wednesday where Messrs. Pearson, Ackman and Schiller were
grilled by senators upset at the company's drug-price increases.
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 30, 2016 02:48 ET (06:48 GMT)
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