Valeant Says It Will Survive Scrutiny Over Business Practices

November 11, 2015 Updated: November 13, 2015
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MONTREAL—The CEO of Valeant Pharmaceuticals vowed on Tuesday, Nov. 10, to listen more to patients and critics as he tried to reassure investors that the company will survive the intense scrutiny that has sullied its reputation and taken a huge bite out of its value.

“We’ll get through this period,” Michael Pearson said during a 90-minute conference call, the third in less than a month.

“We have a very ethical company and we’re very confident in terms of the future.”

The Quebec-based company has been at the centre of allegations over drug price gouging—accusations it has denied—as well as a controversy about its relationship with Philidor Rx Services, a U.S. mail-order pharmacy.

Valeant has severed ties with Philidor, which has been accused of questionable business practices, even though Philidor has assured that there has been no wrongdoing.

Valeant said it is working over the next 90 days to replace Philidor with new specialty pharmaceutical partners to distribute on a contract basis dermatology products that account for 6.8 percent of its revenues. It has no plans to own options in these companies as it did in the case of Philidor.

Pearson said he is unaware of any other issues within his company, but he added it’s impossible to provide a complete assurance given Valeant’s large size and geographic reach.

Since August, its stock has fallen about 70 percent.

One of the consequences of Valeant’s rapid growth was that it didn’t take the time to listen to outside opinions, he said.

“This has been a mistake on our part as a company and on my part as its leader,” he told analysts. “We’re going to fix that. One of the things I’m dedicated to doing going forward is listening more to our patients, our partners, and our critics. And when we think they are right, we are going to respond to make the appropriate changes in how we do things.”

He said that includes not being as aggressive in raising drug prices. The move to hike drug costs in the past prompted a U.S. Congress investigation into Valeant, which has received multiple subpoenas from federal prosecutors.

Pearson said the best way to restore investor confidence is to deliver strong results. While dermatology and neurology revenues will be hit in the fourth quarter, its overall business is unaffected and the company’s longer-term outlook is bright, he said.

 

Stock Price Hit Hard

But he conceded the accusations levelled against the company have taken a toll on employee morale.

“People are pretty upset,” he said. “People pride themselves on how we operate so when the company gets attacked they feel they are attacked personally.”

Valeant’s shares have plunged as a result of scrutiny about its business practices. Since August, its stock has fallen about 70 percent.

Analysts said Valeant’s conference call was positive, but more information about investigations, including an internal review, and strong financial results will help calm investor angst.

“Valeant’s business is under high scrutiny, and we believe many investors are concerned that there may be other not fully disclosed potentially aggressive and questionable business practices that could make the stock vulnerable again,” said Alex Arfaei of BMO Capital Markets.

 

Insider Trading

A U.S. judge has refused to dismiss an insider trading lawsuit filed by two pension funds against Quebec-based Valeant Pharmaceuticals and hedge fund manager Bill Ackman over their activities before last year’s failed attempt to acquire Botox-maker Allergan.

District Judge David Carter of California ruled this week that the case filed on behalf of investors who sold their shares prior to the US$51 billion (C$67 billion) hostile takeover bid should proceed.

The plaintiffs, including Iowa Public Employees’ Retirement System and the State Teachers Retirement System of Ohio, allege that Valeant, Ackman and his Pershing Square Capital Management had non-public information and acted to “deceive, manipulate, and defraud” by purchasing Allergan shares knowing they would proceed with a takeover.

But the defendants argued the case should be dismissed, in part, because they didn’t violate any securities laws.

Valeant spokeswoman Laurie Little said the company remains convinced it complied with the law.

Pershing and Ackman both declined comment.

Dublin-based Actavis bought Allergan for US$70.5 billion last March. Allergan subsequently dropped its own insider trading lawsuit against Valeant and Pershing Square.