Tuesday, February 23, 2016
Valeant Pharmaceuticals International Inc. said it will restate some of its past earnings after a board committee reviewed the U.S. drugmaker’s relationship with a mail order pharmacy.
The restatement deals with results from 2014 and 2015, according to a Valeant statement today. The drugmaker’s board has been looking into its relationship with a mail-order pharmacy called Philidor Rx Services LLC.
Valeant said about $58 million in revenues previously recognized in 2014 should have been booked in subsequent periods. Correcting the misstatements is expected to reduce per share earnings in 2014 by about 10 cents and increase them in 2015 per share by 9 cents, it said.
Valeant faced questions over its relationship with Philidor last year, including accusations of accounting fraud from short-seller Citron Research. The drugmaker eventually revealed that it had paid $100 million for an option to buy Philidor for nothing at any time during the next 10 years, and consolidated Philidor’s financial results into its own.
The company "has preliminarily identified certain sales to Philidor during 2014, prior to Valeant’s entry into an option to acquire Philidor, that should have been recognized when product was dispensed to patients rather than on delivery to Philidor," Valeant said in the statement.
Special Committee
Valeant denied any wrongdoing with its accounting, though it set up the committee on Oct. 26 to review the Philidor relationship. The committee has been run by lead independent director Robert Ingram, and includes directors Mason Morfit, president of ValueAct Capital; Norma Provencio, head of the board’s audit committee; and Colleen Goggins, a former Johnson & Johnson executive.
Valeant Chief Executive Officer Mike Pearson has been out on medical leave since December. The company has been run in the meantime by interim CEO Howard Schiller, who served as chief financial officer from 2011 to June 2015.
In the last three years for which Valeant has filed proxy statements, the CEO received cash bonuses totaling $16.6 million -- including $8 million in 2014 -- that were partly tied to revenue and cash earnings-per-share targets.
Valeant instituted a clawback policy in 2014 that allows it to recoup incentive compensation if the company adjusts its financial statements and an executive is found to have known about or participated in fraudulent or illegal conduct. Pay could be recouped if “the restatement occurs within three years of the relevant period,” according to the company’s policy. A clawback would be at the board’s discretion.
Specialty Pharmacies
The use of mail-order and specialty pharmacies is common in the drug industry, where the pharmacies handle complex drugs, aid drugmakers with obtaining reimbursement from insurers, and ship products directly to patients, cutting out distributors. Yet there were particular aspects of Philidor that raised eyebrows.
In October, it was reported that Philidor engaged in various tactics to boost reimbursements for Valeant from health insurers, including submitting claims under different pharmacy identification numbers and altering the codes on some doctors’ orders so it would appear that physicians or patients wanted Valeant’s brand-name drugs instead of generics. Philidor said that it only filled prescriptions with medications that doctors and patients requested.
Past Comments
Valeant has, in the past, stood by its accounting of the relationship with Philidor. “The audit committee of the board and the full board have reviewed the company’s accounting with the Philidor relationship and have confirmed the appropriateness of the company’s revenue recognition and accounting treatment,” Bob Ingram, interim board chairman, said on an Oct. 26 conference call. Robert Rosiello, Valeant’s chief financial CFP officer, on the same call said the accounting practices were appropriate.
Valeant said on Oct. 30 it would end its relationship with Philidor, and the pharmacy announced it was shutting down. From the first report by Citron on Oct. 2, to Valeant’s cutting ties at the end of that month, Valeant’s stock fell by about half.
Valeant predicted in December that dealing with fallout from the Philidor relationship would trim about $500 million from the company’s fourth-quarter and 2016 earnings before interest, taxes, depreciation and amortization, thanks to disruption to its distribution chain, lower prices for drugs, retention bonuses to keep workers, legal fees and a new patient access program.
Source : bloomberg.com
