VRX Bausch Health Cos

Troubled drug firm files its long-delayed annual report

By Michael Rapoport and Jacquie McNish 

Valeant Pharmaceuticals International Inc. filed its long-delayed annual report and further reshaped its board Friday, defusing the danger of a debt default and positioning the company for a fresh start after months of concern over its accounting and business practices.

But the Canadian drugmaker also disclosed new and broadened regulatory investigations -- in addition to the Securities and Exchange Commission probe it already faces -- indicating it isn't out of the woods yet.

Valeant said its default worries were "cured in all respects" by its 10-K annual filing with the SEC. The report, originally due in February, was delayed as Valeant sorted out its financials in the wake of an internal probe into its now-ended relationship with mail-order pharmacy Philidor Rx Services LLC. The failure to file violated Valeant's borrowing agreements, and banks and bondholders could have accelerated its payments on billions of dollars in debt if it hadn't filed the report by late May.

Valeant shares traded down 5.4% to $33.36 on Friday. The Laval, Quebec-based company's stock has fallen more than 85% from its high last August on concerns over its practice of dramatically boosting the prices of its drugs, as well as its accounting for its relationship with Philidor.

Valeant reaffirmed that an internal investigation hadn't found any significant financial problems beyond a previously planned restatement of earnings; the company had determined it prematurely booked $58 million in revenue through Philidor. The restatement dented its 2014 profit by about $33 million, or 9 cents a share, the company said, and its first-quarter 2015 profit by $24 million, or 7 cents a share.

The drug company also said its loss for the fourth quarter of 2015 was wider than it initially reported in March. The loss was $385.9 million, compared with the previously reported $336.9 million and a restated profit of $512.5 million in the year-earlier fourth quarter. Valeant posted a 2015 loss of $291.7 million, compared with a restated profit of $880.7 million for 2014.

Valeant outlined investigations from state regulators in North Carolina and New Jersey that hadn't previously been disclosed. North Carolina is investigating the company over its pricing decisions and patient-assistance programs, and New Jersey is investigating Valeant's relationship with Philidor. The Wall Street Journal has reported Philidor used aggressive tactics to get insurers and pharmacy-benefit managers to pay reimbursements for its often high-price drugs.

Federal prosecutors in New York and Massachusetts, who were already investigating Valeant over patient assistance and pricing, are now also looking at the Phildor relationship and information Valeant provided to Medicare and Medicaid Services about drug discounts.

The 10-K shed some light on the transactions with Philidor that led to the restatement. The filing said they included "fulfillment of unusually large orders with extended payment terms and increased pricing," as well as an emphasis on delivering product before Valeant purchased an option to buy Philidor, a move that affected when Valeant could record Philidor-related revenue. Valeant said its procedures governing "nonstandard revenue transactions" such as the Philidor transactions need improving.

Valeant said it intends to hire more staff to "enhance" its accounting and finance capabilities, to address problems with its "tone at the top" and pressure on executives to hit performance targets. The company has alleged "improper conduct" by Howard Schiller, its former financial chief, and Tanya Carro, its corporate controller who was placed on administrative leave. Mr. Schiller has said he did nothing improper. Ms. Carro and a representative for Mr. Schiller couldn't immediately be reached for comment Friday.

Separately, Valeant nominated three independent directors for election to its board. The new nominees are Argeris Karabelas, a former drug-industry executive and a partner at life-sciences venture-investment firm Care Capital LLC; Russel Robertson, a BMO Financial Group executive and former auditor; and Amy Wechsler, a New York dermatologist.

The move follows Valeant's appointment earlier in the week of Perrigo Co. chief Joseph Papa as its new leader, replacing Michael Pearson. It also comes on the heels of other board changes, including the appointment of major Valeant investor William Ackman as a director in March.

If Valeant's slate of directors is elected at the company's annual meeting June 14, only two directors who were on Valeant's board a year ago, Robert Ingram and Robert Power, will remain, and the board will shrink to 11 members from 14. Five current directors -- including Mr. Pearson and Mr. Schiller, who refused a request from Valeant's board to resign as a director -- won't stand for re-election.

Besides Mr. Papa, Mr. Ingram, Mr. Power, Mr. Ackman and the three new independent nominees, the company's slate includes four other independent directors named to the board in the past year -- Frederic Eshelman, Stephen Fraidin, Thomas Ross Sr. and Robert Hale, who will represent big Valeant investor ValueAct Capital Management LP as ValueAct's president, Mason Morfit, leaves the board.

The 10-K filing and board changes cap a busy week for Valeant, which also included Mr. Papa's appointment and a congressional hearing Wednesday where Messrs. Pearson, Ackman and Schiller were grilled by senators upset at the company's drug-price increases. Mr. Ackman signaled at the hearing that board changes were afoot and promised Valeant would take swift action to reduce prices on some drugs.

Anne Steele contributed to this article.

Write to Michael Rapoport at Michael.Rapoport@wsj.com

(END) Dow Jones Newswires

April 30, 2016 02:48 ET (06:48 GMT)

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