Valeant says it will establish a committee to review allegations about the company’s relationship with specialist pharmacy Philidor, following what it called “unsupported” accusations of fraud and manipulation of revenue figures.
Valeant is alleged to have used Philidore to inflate its revenues and to sell its products directly to customers at a discounted price while bypassing health insurers.
During a 75-minute investor conference call on Monday, around a dozen company executives and board members rejected the claims, with CEO Michael Pearson calling them “unsupported speculation and incorrect interpretations of facts and circumstances to the detriment of the shareholders.”
Pearson had strong words for Citron, the company behind the allegations against Valeant, saying the short-seller’s report’s sole purpose was to cause panic in Valeant investors and lower share prices.
Of Citron CEO, investor Andrew Left, Pearson said: “His motivation is the same as one who runs into a crowded theatre and falsely yells fire. He wanted people to run. He intentionally designed the report to frighten our shareholders to drive down the price of our stock so he could make money for his short-selling.”
In a statement released yesterday before the call, Valeant said that after reviewing its accounting for the Philidor arrangement, it could “confirm the appropriateness” of its related revenue recognition and accounting treatment and that it is “in compliance with applicable law”, yet felt the need to set up the committee in order to reassure investors.
The newly-established committee will be chaired by Robert Ingram, the company’s lead outside director, and will also include Norma Provencio, chairman of the audit and risk committee; Colleen Goggins; and Mason Morfit, who has been appointed to the board as an independent director.
“As we have said previously, our accounting with respect to the Company’s Philidor arrangements is fully compliant with the law,” J. Michael Pearson, Chairman of the Board and Chief Executive Officer of Valeant said. “However, other issues have been raised publicly about Philidor’s business practices, and it is appropriate that they be fully reviewed. This decision to create an ad hoc committee of the board, which I fully support, will help free management to focus on continuing to serve doctors and patients and run our business.”
“We operate our business based on the highest standard of ethics, and we are committed to transparency. These values are at the core of our business model, and if we find violations we will take appropriate action,” Pearson said.
Monday’s conference call promised to address seven points of concern, namely specialty pharmacies; Valeant’s history with Philidor; Philidor’s network and operations; accounting and disclosure for Philidor; Valeant diligence, oversight, and control as it relates to Philidor; the facts surrounding R&O; and a summary of the Philidor situation and the next steps the company would take.
It emerged that Valeant has an option to buy the Philidore pharmacy for the next 10 years, having paid $100 million to acquire the right. While the acquisition price will be $0, additional milestone payments up to $100 million may be applicable.
Valeant also insisted that its previous lack of disclosure around Philidore was legally appropriate, as the distributor’s revenues are not sufficiently high to meet the threshold for segment reporting.
Valeant shares fell about a further 3% to $113 on Monday, having sat at around $117 prior to the allegations from Citron.