Valeant Pharmaceuticals And The 'Archive Of Rebuttals'

Valeant Pharmaceuticals Intl Inc VRX has been facing plenty of controversy in recent months. “In response to recent events, Valeant has developed an online archive of rebuttals to many of the allegations that have been made against the company,” its investor relations site reads.

Below is a look at some of the juiciest scandals and the company’s response.

Citron’s Report

October 20, 2015, Citron Research’s Andrew Left, said Valeant was incurring in accounting fraud, comparing it to Enron.

One of the research firm’s allegation was that “if Valeant had not taken these price increases, it would have missed the Q1 2015 Street consensus EPS estimate by 9.22 percent.”

Valeant responded:

• “As stated in the second Veritas response statement from October 1st below, acquisitions at the time of guidance and price increases were included in our initial and subsequent guidance.”
• “As stated the Citron response from September 27th below, the actual price increases achieved are much less than the gross increases taken.”

Citron: “The real lie is the way Valeant has redefined Organic Growth – in its treatment of the drugs they discontinue during a quarter.”

Valeant: “Valeant discloses divestitures and discontinuations every quarter with our organic calculations in the press tables. Most recently for Q2 discontinuations was $10 million on $2.7 billion of revenue, therefore the impact to organic growth would be not be significant at 0.37 percent.”

‘Channel Stuffing’

• “Recent allegations regarding heightened inventory levels at Valeant are unfounded. Unlike developed countries, which have targeted inventory levels of approximately 2–6 weeks. Valeant has set targeted inventory levels for emerging markets at 2–4 months, depending upon the market and product. Inventory levels can fluctuate from period to period even if there is no change in the absolute value of inventory due to fluctuations in market demand and other economic factors.”
• Inventory levels at the time were:
  • < 1 month on hand for U.S. excluding Salix.
  • ~1.5 months on hand for U.S. Salix products.
  • ~3 months for Emerging Markets.

Response Statement Regarding Clerical Error In Delivery Of Shares

• “Despite recent allegations, the fact is that the misdelivery of shares to Valeant’s CEO was publicly disclosed in an SEC filing on March 13, 2014.  As disclosed in our public filing, the shares that Mike Pearson received in error were fully vested as of May 24, 2013 based on achievement of the applicable performance criteria, and Mr. Pearson repaid the value of the shares he received plus interest.”

Bronte Capital

• “Short sellers have been making false, unsubstantiated claims about Valeant for months in an attempt to drive down our stock price, and today’s allegations also contain significant inaccuracies. Valeant has already disclosed that 7.2 percent of our sales this year through the third quarter went through specialty pharmaceutical channels, and that has not changed. As we have said, in October we decided it was appropriate to sever our relationship with Philidor after allegations about their business practices came to light. The entities mentioned today appear to have been formed on or prior to 8/18/2015, based on public records. Furthermore, our board of directors has appointed an ad hoc committee to review allegations related to Valeant’s business relationship with Philidor and related matters.”

SEC Investigation

• “In response to media inquiries, Valeant confirmed that it has several ongoing investigations, including investigations by the US Attorney’s Offices for Massachusetts and the Southern District of New York, the SEC, and Congress. With respect to the SEC investigation the Company confirmed that it received a subpoena from the SEC in the fourth quarter of 2015 and, in the normal course, would have included this disclosure in its 2015 10-K. We do not have further detail to provide at this time.”

Shareholder Litigation

• “We are aware of the filing and have not been served yet. This T. Rowe Price complaint repeats allegations and claims as in the pending securities putative class action brought against Valeant by TIAA-CREF (as lead plaintiff). As with the original complaint, which was filed in October 2015, Valeant intends to defend itself and cannot comment further on ongoing litigation.”

Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.