Saturday, May 7, 2016

'Twas a Valeant Effort

I've done the best I can, readers.

"What Valeant’s fall from grace can teach the drug industry" by Ed Silverman, March 29, 2016

As reversals of fortune go, Valeant Pharmaceuticals would be hard to beat.

The drug maker became a Wall Street darling by purchasing products and then jacking up prices to new heights. Bankers collected fees on deals, investors profited on a soaring stock price, and Valeant successfully held itself out as a new industry growth model by pooh-poohing investments in research and development.

Now, though, the Valeant bubble — and it was a bubble — has popped.

After becoming the target of congressional probes, losing most of its share value, and facing the risk of defaulting on its $30 billion debt, Valeant’s provocative business model is falling apart, and many people — patients, taxpayers, and investors, among them — have come out losers.

There were some winners.

Here are a few takeaways on what the Valeant saga means for the pharmaceutical industry....


"Drug-maker Valeant cites subpoenas by US offices in Boston, N.Y." by Linda A. Johnson Associated Press  October 15, 2015

TRENTON, N.J. — Valeant Pharmaceuticals International Inc. said federal prosecutors in Boston and Manhattan have subpoenaed the Canadian drug maker, seeking information on its drug pricing, distribution, and patient-assistance policies.

The company said that it received one subpoena recently from the US attorney’s office for the District of Massachusetts and another from the US attorney for the Southern District of New York. They are among several US attorney offices known for prosecuting drug makers for crimes such as overcharging government health programs and marketing medicines for unapproved uses.

The subpoenas, disclosed late Wednesday, probably won’t be the last, according to one analyst, coming amid rising criticism of sky-high prices for new prescription drugs for cancer, hepatitis C, and other illnesses, with list prices near $100,000 a year. Condemnation by patients, doctors, and insurers has been mounting steadily for a couple of years, then escalated in recent months over news Valeant and a handful of other manufacturers have been raising the prices of old drugs many times over their prior cost.

Democratic presidential front-runners Hillary Clinton and Senator Bernie Sanders recently added unaffordable drug prices to their campaign issues.

That's disgusting.

Some members of Congress have been demanding that drug makers explain their actions. 

So they can have a photo-op hearing that can be run as campaign ads.

‘‘This is not going to be the last time you see subpoenas for documents’’ on drug pricing, predicted analyst Steve Brozak, president of WBB Securities.

Valeant drew the interest of Congress by purchasing the heart drugs Nitropress and Isuprel and then immediately jacking up their prices last spring.

Valeant CEO J. Michael Pearson said his company has operated “in a fully compliant manner,” and will cooperate with the federal inquiries.


Let's take a look at those books:

"Valeant plunges on allegation of Enron-like accounting" Associated Press  October 21, 2015

NEW YORK — Valeant Pharmaceuticals stock plunged 19.4 percent Wednesday after Citron Research compared the Canadian pharmaceutical company to the collapsed energy giant Enron and accused it of creating a network of phantom pharmacies to fool auditors.

RelatedAveo, SEC in talks on handling of drug trial

Aveo misled investors, and we just crashed through the bottom.

It's all lies, no matter the institution.

Citron said it appears Valeant and the specialty pharmacy Philidor have created the network, and that Philidor appears to own R&O Pharmacy, a company Valeant has accused of improperly withholding payments.

Valeant CEO Michael Pearson told analysts on Monday that his company works with Philidor and, late last year, Valeant had purchased an option to buy that company.

Citron said it appears Valeant and Philidor created a network of clones to Philidor to avoid auditor scrutiny. Citron said it ‘‘believes the whole thing is a fraud to create invoices to deceive the auditors and book revenue.’’

Citron is a short seller’s research firm that publishes reports online about companies. Short sellers earn money when a stock declines.

They expect the stock to crash?

Citron says it does not guarantee it is providing all available information, and its principals ‘‘most always’’ hold a position in securities profiled on its site.

Valeant denied the allegations. ‘‘Citron’s false and misleading statements about Valeant appear to be an attempt to manipulate the market in an effort to drive down Valeant’s stock price,’’ spokeswoman Laurie Little said.

Pot hollering kettle, 'eh?

Valeant posted an explanation of how it deals with sales and inventory tied to Philidor Rx Services. It said Philidor’s pharmacy network includes R&O, and Valeant only records sales involving that network when a product is dispensed to a patient. Those sales are treated as intercompany and are eliminated from the consolidated revenue Valeant reports.

Valeant faces increasing scrutiny over its prices. Valeant’s business model has historically involved acquiring drugs that it considers undervalued, or mispriced, and then raising the price to what it determines is a proper value.

Valeant said last week that federal prosecutors in Massachusetts and Manhattan have subpoenaed documents on its pricing and other policies.


RelatedValeant’s unsavory ways a lesson for us all

How many more out there?

Valeant to investigate ties with pharmacy

Prices of two Valeant drugs found to soar 1,700 percent

CVS targets Valeant’s $1,000 fungus drug with restrictions

CVS cuts Philidor from network

Valeant cutting ties with Philidor

Valeant CEO vows to build better ties

Then he went on medical leave!

 Schiller stepping in for ailing Valeant chief

"Valeant Pharmaceuticals regained some credibility with upset investors thanks to its announcement Tuesday of a new distribution deal with Walgreens and plans to line up more pharmacies to sell its products after a scandal forced it to cut ties with a key distributor, Philidor. The news drove up shares of the beleaguered Canadian drug company, but it still faces US government scrutiny over big medicine price hikes and allegations it used Philidor, a mail-order pharmacy, to steer payers toward Valeant’s more expensive drugs, rather than cheaper alternatives. Investors will be listening for more details on the deal with Walgreens, the largest US drug store chain, and Valeant’s other plans on Wednesday, when it hosts an investor webcast to update its financial forecast and discuss business operations and research. Walgreens, the retail pharmacy division of Walgreens Boots Alliance Inc., ‘‘has a lot of credibility and muscle,’’ said Nomura analyst Shibani Malhotra, making the deal ‘‘very important for Valeant.’’ ‘‘It really improves their credibility,’’ because Valeant delivered so quickly on its pledge to line up a new distributor to replace Philidor, Malhotra said, adding that investors had worried no pharmacies would work with Valeant in the future. On Tuesday, US-traded shares of Valeant Pharmaceuticals International Inc. jumped more than 16 percent, or $15.49, to $109.63, as the broader markets climbed about 1 percent." 

And that is the important thing. The illusion of a credible image.

"Valeant Pharmaceuticals said Wednesday it had sharply lowered its sales and earnings forecasts for this year and next as it deals with controversies over its pricing and distribution strategies. The company issued its revised guidance shortly before beginning a lengthy meeting for investors and analysts at which it was to further discuss its business outlook for 2016 and beyond. While Valeant’s news release did not state the reasons for the lowered guidance, this fall the company severed ties to a mail-order pharmacy that helped win reimbursement for its costly dermatology drugs. It is facing federal and congressional inquiries over its pricing practices. News reports had found that the pharmacy, Philidor Rx Services, might have used inappropriate tactics with insurers, and some investors had criticized Valeant for hiding its financial relationship with the pharmacy. On Tuesday, Valeant announced a new distribution deal with Walgreens meant to replace the one it had with Philidor."

Valeant discloses SEC probe

Embattled Valeant to expand its board

"Valeant’s bad day gets worse as stock plunges during earnings call" by Cynthia Koons and Caroline Chen Bloomberg News  March 15, 2016

NEW YORK — Valeant Pharmaceuticals International Inc. shares plunged Tuesday on their worst day ever, falling as much as 51 percent after the company cut its 2016 forecast, reported a weak fourth quarter, and said it risked breaching some of its debt agreements if it can’t file its annual report in time.

During a two-hour call with analysts, chief executive Mike Pearson was questioned about why he was the right man to lead the drug maker. Adding to the company’s problems, during the call it corrected its press release issued hours before, saying that one measure of earnings would actually be lower than it had stated.

“How can we be confident in what you’re saying about the business, given you were positive in December and January?” said Shibani Malhotra, an analyst with Nomura Securities who has been bullish on the stock, with a “buy” rating and a $175 price target. “How do we get comfortable that Valeant is able to execute and deliver for shareholders?”

Billionaire investor Bill Ackman, one of Valeant’s top holders, lost about $764 million on the day. Despite the slide in the stock since Pearson returned from medical leave last month, Pershing Square Capital Management LP remains supportive of the Valeant CEO, according to a person familiar with the situation, who asked not to be identified discussing private information.

I'm sure he is used to it.

The forecast and uncertainty about the potential for a default have caused investors to lose “total confidence” in the company, Pershing said Tuesday in a letter to shareholders. “We are going to take a much more proactive role at the company to protect and maximize the value of our investment,” said Pershing, which gained a seat on the board last week with the nomination of vice chairman Steve Fraidin.

“We have to earn back the credibility,” Pearson said in his first public remarks since returning from a medical leave two weeks ago. “We have to deliver on results. We have to meet or exceed this guidance,” Pearson said during the call. “It’s a bit of a starting-over point for me and this company.”

Laval, Quebec-based Valeant is at risk of violating its debt agreements, putting it at the mercy of its creditors because it will be late filing its annual report. Valeant said it must file its 10-K by March 30 to avoid triggering cross-defaults that would restrict it from being able to further tap its credit line....


"Valeant Pharmaceuticals said Wednesday that it wants to delay the release of its financial statements by several weeks to avoid a default of its loans."

That won't be reassuring to lenders or investors.


Maybe this will:

"Valeant CEO Mike Pearson will step down" by Cynthia Koons Bloomberg News  March 21, 2016

Open warfare has broken out at Valeant Pharmaceuticals International Inc.

After a series of conference calls during the weekend, the drugmaker’s directors came out swinging.

They blamed former chief financial officer Howard Schiller for “improper conduct” that contributed to financial misstatements and asked him to resign his seat on the board. He refused, saying he did nothing wrong. Chief executive Mike Pearson will step down and Bill Ackman, the billionaire investor whose hedge fund has lost hundreds of millions betting on Valeant, will join the board.

“Circular firing squad emerges,” was how Piper Jaffray & Co. analysts led by David Amsellem put it Monday. “It appears to us that there is some scapegoating at play here, and yet it is also clear to us that there is ample blame to go around,” they said in a note to investors.

The latest developments add more craziness to the chaos since Pearson’s return to work three weeks ago following a three-month medical leave. Since the end of February, Valeant has delayed filing its annual report pending an internal investigation by an ad hoc committee, disclosed a Securities and Exchange Commission probe, and said it would restate several quarters worth of results. The company, which has been under scrutiny for months for its business practices, said Monday it has discovered “one or more material weaknesses” in internal controls.

“The improper conduct of the company’s former chief financial officer and former corporate controller, which resulted in the provision of incorrect information to the committee and the company’s auditors, contributed to the misstatement of results,” Valeant said in the statement.

“At no time did I engage in any improper conduct that relates to any restatement of revenue the company is considering,” Schiller said in a statement. “As a result of the fact that I did not engage in any improper conduct regarding this proposed restatement, I have respectfully declined the request from the company’s board to resign from the board.”

Under the company’s clawback policy, Schiller, whom the board chose to be interim CEO while Pearson was on medical leave, may be forced to pay back some of the $26.1 million in incentive compensation he received as chief financial officer in 2014.

The policy allows Valeant to seek reimbursement of certain bonus, incentive, or equity-based compensation from executives if “the company materially restates or adjusts its financial statements.” It also applies if the restatement was caused by fraudulent or illegal misconduct and whether or not the executive is still an employee.

The shares had their biggest intraday gain since Dec. 15 and were up 7.6 percent to $28.97 at 4 p.m. in New York. Last week, the stock fell by more than half after the drugmaker cut its 2016 forecast, reported weak fourth-quarter results, and said it was at risk of breaching some of its debt agreements....


It's a “positive first step.”

"Outgoing Valeant CEO Michael Pearson was nearly held in contempt of the Senate after initially refusing to be deposed. Hillary Clinton has called out the company by name on the campaign trail; one of her tweets was swiftly followed by a steep drop in Valeant’s stock value. The company has been mired in twin controversies in recent months. First, part of its business model has been acquiring existing drugs and raising their prices. Second, its relationship with a specialty pharmacy has led to questions about the company’s accounting practices and prompted a federal probe. Valeant has shaken things up, pushing out former company executive Howard Schiller and Pearson and, as announced this week, hiring Joseph Papa as chief executive. But Wall Street seems skeptical about the company’s future. Valeant’s stock price has fallen."

The $cum expressed contrition for raising prices so steeply, but the senators piled on and they weren’t in a mood to make nice.

Valeant Pharmaceuticals picks Joseph Papa as CEO

Big Papa!

"Billionaires Warren Buffett and Bill Ackman couldn’t be further apart on Valeant Pharmaceuticals International Inc. In back-to-back television interviews Monday on CNBC, Buffett lambasted the embattled drug maker over its price increases and business practices, while Ackman — whose firm Pershing Square Capital Management is one of Valeant’s biggest holders — praised its great products. “I don’t think you’d want your son to grow up and run a company in the manner that Valeant was run,” Buffett said. His deputy Charles Munger, a longtime critic of the drug maker, went much further at the Saturday meeting: “Valeant of course is a sewer, and those who created it deserve all the opprobrium that they got,” Munger said. That was too much for Ackman, who’s now on Valeant’s board." 

Herbalife says it’s in advanced talks with FTC, shares soar

This is all too much for me.


Valeant to pay former CEO Pearson $83,000 a month for consulting

So they can then do the opposite?

Can they afford the giveaway of cash?

"Joseph C. Papa, the new chief executive of Valeant Pharmaceuticals International, telling analysts that the company’s future was “bright,” despite a big loss of nearly $374 million in the first quarter — and $30 billion in debt — said it will no longer rely as heavily on price increases and big acquisitions to drive profits." 

The ride is over (except for Pearson).