Valeant shares have plummeted roughly 25% since Left published his report on October 21 accusing the drug maker of an Enron-like web of deception by creating phony pharmacies that fraudulently book revenues and deceive auditors. You can read our guide to the major issues behind the controversy here.
Advertisement
Investors, who received an update on the accounting methodology and other details of the Valeant-Philidor relationship during a Monday-morning conference call with Valeant officials, sent the company’s shares down 16.06% to $97.50 in pre-market trading.
“However, other issues have been raised publicly about Philidor’s business practices, and it is appropriate that they be fully reviewed”, Chairman and CEO J. Michael Pearson said in a printed statement. Philidor was unable to get a license to operate in California – which Valeant said its ad hoc committee will investigate. His motivation is the same as someone who runs into a crowded theater to falsely yell fire; he wanted people to run.
“I also want to reiterate the board’s complete and total faith in Mike Pearson”.
Short sellers like Left bet against a stock and profit when the price falls.
Valeant Pharmaceuticals worldwide Inc. defended itself Monday, saying it had properly accounted for its much-debated relationships with specialty pharmacies and had found “no evidence whatsoever” of any illegal activity at the company.
Valeant hadn’t previously discussed the relationship even though it had been counting Philidor as part of its financial results for months, and even though it represented about 7% of Valeant’s third-quarter revenue and adjusted earnings.
Valeant gave investors a few answers around its relationship with specialty pharmacy Philidor RX-it paid $100 million for the right to purchase Philidor for no additional cash outlay. (Morfit had been a board member between 2007 and 2014). “I think it’s legal”, said Pearson of that arrangement. Valeant had generally kept quiet on its relationship with Philidor before last week, because Valeant said it considered its use of such pharmacies as “one of our competitive advantages”.
Umer Raffat, a senior equity analyst at Evercore ISI, issued a note after Monday’s conference call and pointed out that Valeant is indemnified from Philidor’s obligation.
“We are not anticipating any impact, but it is hard to predict how recent events will impact the business in the short term”, the company said.
Valeant’s share price has declined more than 38% since the report came out. McCaskill called Valeant’s response “deeply disappointing”. Our commitment is to the patients who use our drugs, the doctors who prescribe them, our partners who make them available across the country, and to our shareholders.
WSJ noted that an apparent Phildor employee named Bijal Patel used an alter ego name when communicating with his peers via email.
Advertisement
In a presentation posted online Monday, Valeant said Philidor is independent and that the drugmaker’s accounting leaves no way for it to stuff inventory into the pharmacy.
