Course:MGMT405 2023W2/Case-2iv

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Valeant Pharmaceuticals

Valeant Pharmaceuticals International, Inc. Logo

Background

Valeant was founded as ICN Pharmaceuticals Inc. in 1959 by Milan Panic.[1] In 2002, after 43 years of running the company, under pressure from shareholders critical of his large bonuses and personal loans, Panic resigned as CEO and Chairman.[1] Shortly after Panic's removal, in 2003, ICN rebranded as Valeant Pharmaceuticals.[2] In 2010, Valeant merged with Biovail Corp of Canada.[3] Both companies brought a history of running afoul of the SEC. In 1999, Valeant (at the time ICN Pharma under CEO Panic) was charged with misleading investors when it failed to disclose that its Hepatitis C drug was not approved by the FDA.[4] In 2008, the SEC charged Biovail, along with its CEO and three senior executives, with fraudulent accounting practices.[5] In 2018, Valeant Pharmaceuticals International, Inc. changed its name to Bausch Health Companies Inc.[6] It is headquartered in Laval, Quebec, Canada.

Current Name Bausch Health Companies Inc.
Industry Pharmaceuticals
CEO Thomas J. Appio[7]
Founded 1959 as ICN Pharmaceuticals[1]
Founder Milan Panic[1]
Stock Symbol BHC
Revenue US $8.1 billion (2022)[8]
Headquarters Laval, Quebec, Canada

What Happened

2008

  • Michael Pearson is named CEO of Valeant and chairman of the board of directors.[5][9] Pearson introduces a business strategy focused on acquisitions, cost-cutting, and price hikes.[10] Instead of developing new drugs (and incurring the high R&D costs associated with drug development), Valeant's business model becomes acquiring older drugs with smaller patient markets and drastically increasing the prices of those drugs.[11] For instance, after acquiring the drug Syperine, used for a rare genetic disorder called Wilson's Disease, it would increase the price by over 3,000%[11] After acquiring the diabetes drug Glumetza, it increased the price by 800%.[12]
  • Between 2008 and 2015, Valeant will conduct more than 100 acquisitions.[10] Once companies are acquired, Valeant conducts extreme cost cutting and mass layoffs.[10]
  • The board ties executive compensation to shareholder returns, creating a culture of maximizing stock price over all else.[10]

2010

  • Valeant merges with Biovail Corp of Canada. The newly formed company retains the Valeant name and Pearson stays on as CEO.[3]

2013

  • Valeant helps form (but does not own) Philidor RX, a specialty mail order pharmacy that primarily dispenses Valeant products.[13]

2015

  • Bill Ackman's Pershing Square Capital Management invests $3.2 billion becoming one of Valeant's largest investors. Ackman will go on to invest a total of ~ $4 billion.[14] Ackman calls Pearson a capital allocation genius, compares him to Warren Buffet.[10]
  • In June, CFO Howard Schiller resigns but stays on as a board director.[15]
  • In July, Valeant's stock surges and Valeant overtakes RBC to become Canada's largest company by market value.[16]
  • In November, the online investment publication Citron Research publishes a report alleging Valeant has inflated drug sales through fraudulent transactions with Philidor, the specialty mail order pharmacy it helped create two years prior.[17] Valeant's stock drops 30% as a result.
  • Valeant's downfall begins.

2016

  • In February, Valeant announces the board and an ad hoc committee have reviewed Valeant's relationship with Philidor, and Valeant restates earnings to correct misstatements regarding revenue recognition in 2014.[18] Valeant had incorrectly recorded $58 million of revenue it prematurely attributed to sales to Philidor[19] Valeant was stocking Philidor with slow-selling drugs and recognizing it as revenue, despite Philidor not having dispensed the drugs to patients.[13] Further, Valeant did not disclose the nature of its relationship with Philidor in its MD&A.[13]
  • While $58 million is a relatively minor sum compared to the company's $10 billion in sales, it invites increased scrutiny and raises concerns that Valeant cannot service the $30B in debt it has amassed to finance its aggressive acquisition strategy.[20]
  • Other questionable accounting practices come to light: Valeant underreported costs incurred as part of its acquisitions and used questionable accounting tactics to conceal the performance of the acquisitions. [20][10] For instance, Valeant attributed revenue from Glumetza, a profitable diabetes drug, to other poorly performing revenue channels.[19]
  • In March, Valeant's board ousts Pearson as CEO. Pearson agrees to stay on until a replacement is found.[21]
  • Bill Ackman joins the board.[21]
  • In April, the US Senate opens a hearing questioning Pearson, Ackman, and former CFO Howard Schiller about Valeant's drug pricing tactics, accusing the company of running a monopoly that profited to the detriment of its customers.[11] Pearson expresses regret about the price hikes, saying he and the company were too aggressive.
  • In May, Pearson is replaced by Joe Papa as CEO. Papa blames the company's problems on poor "tone at the top" and accuses former CFO Howard Schiller, who resigned in 2015 but remains on the board, for the improper accounting tactics.[22]
  • Ackman defends his investment in Valeant.[23] Ackman expresses confidence in Papa's leadership and in Valeant's increased R&D budget and promising drug development pipeline (Valeant's R&D spending still remains well under industry norms).
  • By the end of 2016, Valeant's stock price has dropped 86% [24]

2017

  • Only two years after making the initial investment, Ackman sells Pershing's entire stake in Valeant, losing $3B. [14]

2018

  • Valeant changes its name to Bausch Health. CEO Joe Papa says the rebranding represents the company's transformation.[25]

Key Players

Michael Pearson

(left to right) Michael Pearson, Howard Schiller and Bill Ackman

A former consultant at McKinsey & Co.,[5] Pearson served as Valeant CEO from 2008 until his removal by the board in 2016 due to the accounting scandals plaguing the company.[21] Pearson transformed Valeant's business strategy from a traditional drug development company into one solely focused on acquisitions and price hikes of orphan drugs.[10] Pearson is blamed for creating a poor "tone at the top" which enabled the accounting misstatements to occur.[22] In 2017, Pearson sued Valeant for $30M in unpaid severance and consulting fees.[26]

Howard Schiller

Valeant's executive vice president and CFO from 2011 to 2015 and a member of Valeant's board from 2012 to 2016. Schiller resigned as CFO in 2015 but remained on the board.[15] In 2016, Schiller is accused of improper conduct, resulting in financial misstatements, by the incoming CEO Joe Papa, and is asked to step down from the board.[27] Schiller denies the allegations and refuses to resign as a board member.[28]

Tanya Carro

Served as Valeant's corporate controller and senior vice president of finance from 2011 to 2016.[29] As controller, Carro was responsible for preparing Valeant's financial reports and earnings presentations.[29]

Bill Ackman

Billionaire investor and CEO of Pershing Square Capital Management. Became one of Valeant's largest investors in 2015, investing a total of nearly $4B.[14] Ackman joined Valeant's board in 2016.[21] In 2017, Ackman sold his entire stake in Valeant, losing $3B.[14] Ackman staunchly defended Valeant's management and business strategy throughout.

Key Stakeholders

Creditors and Lenders

Financial institutions, such as banks, that provided loans to Valeant were directly affected by Valeant's misrepresentation of their accounting, which initially helped Valeant secure funding. However, the scandal resulting from the misrepresentation led to Valeant facing near-bankruptcy in 2016 because of the scrutiny over its subsidiary Philidor and questionable accounting practices. Valeant's financial issues were worsened by a staggering $30 billion debt from aggressive deal-making and increased scrutiny on its drug pricing strategies. A Forbes investigation suggested that Valeant's downfall was partly due to an excessively generous compensation plan, which exacerbated its financial pressures.[30] This situation significantly impacts creditors as Valeant's ability to pay its debts is compromised, which could lead to losses for them.

Patients and Customers

The exorbitant prices of Valeant's specialized medications, which rose significantly after the company acquired them to increase revenue, had severe consequences for patients and customers. For instance, people who depended on drugs like Cuprimine to treat critical conditions such as Wilson's disease faced uncertainty and potential harm due to the skyrocketing drug prices.[31] Valeant's decision to quadruple the price of Cuprimine overnight created an unmanageable financial burden, with patients now responsible for paying thousands of dollars out of pocket each month. Valeant's strategy of acquiring existing drugs and dramatically raising prices not only benefits investors but also fuels public outrage and draws criticism from lawmakers. The company's significant price hikes on its brand-name drugs, averaging 66 percent in a single year, jeopardize the health and well-being of patients and customers.

Shareholders and Investors

The executives in the upper management of Valeant engaged in unethical business strategies and deceitful accounting practices that grossly misled shareholders. Their actions, which included charging exorbitant prices for drugs, were criticized by figures such as Democratic presidential contender Hillary Clinton as predatory and unjustified. As a result of their unethical conduct, Valeant's share value experienced a significant drop, falling by nearly 9 percent to $86.12 on the New York Stock Exchange in early 2016.[32] The company's approach of buying older drugs, increasing their prices substantially, and using aggressive tactics to secure reimbursement faced increasing scrutiny, leading to investor concerns and significant shareholder losses.

Regulatory Bodies

Valeant has been involved in a series of controversies related to questionable business practices, accounting discrepancies, and drug pricing issues. These controversies have resulted in investigations by regulatory bodies such as Congress and the U.S. Securities and Exchange Commission (SEC). This has put a significant burden on regulatory bodies like the SEC, as they have to pursue inquiries and initiatives to ensure the integrity and security of the market. The delayed filing of Valeant's 2015 financial statements, along with revelations of discrepancies in financial restatements, has heightened the scrutiny. The company's subsidiary, Philidor, has been accused of using contentious sales tactics, and details emerged regarding revenue accounting practices.[33] These investigations and disclosures aim to reassure the public of market integrity and protect against misrepresentation and fraud within the pharmaceutical industry.

Current Status of Lawsuits

In 2020, Bausch Health (formerly Valeant Pharmaceuticals) was ordered by the United States Securities and Exchange Commission to pay $45 million in penalties for improper revenue recognition and misleading disclosures dating back to 2014.[34] Former Valeant CEO Michael Pearson, former CFO Howard Schiller, and former Controller Tanya Carro were the subject of these charges.[35] This settlement would end the investigation into Valeant Pharmaceuticals' previous relationship with Philidor Rx Services and Valeant's public disclosure and accounting practices in 2014 and 2015.[36] No major lawsuits related to these events remain open today.

2018: A former Valeant executive and the former CEO of Philidor are sentenced to 1 year in prison for engaging in a kickback scheme revolving around Valeant's acquisition of Philidor.[13]

  • Former Valeant executive Gary Tanner and former Philidor CEO Andrew Davenport each received a 1 year and 1 day prison sentence for their roles in a multimillion dollar kickback scheme.
  • During Valeant's 2014 purchase of Philidor, Davenport redirected $9.7 million of the $133 million paid to acquire Philidor to Tanner through a shell company called Briefcase Consolidated, LLC.[37]
  • Tanner and Davenport were convicted of conspiracy to commit honest services wire fraud, honest services wire fraud, conspiracy to violate the Travel Act, and conspiracy to commit money laundering on May 22, 2018.[37]

2016: Valeant Pharmaceuticals and other affiliated companies faced a class action lawsuit allegeing the defendants overcharged for medications in contravention of racketeering and consumer-protection legislation. [38]

  • The lawsuit was brought on by the New York Hotel Trades Council & Hotel Association of New York City and the Detectives' Endowment Association of New York in 2016.
  • Valeant and all other defendants faced charges of conspiring to violate the RICO act through various undertakings including wire fraud, mail fraud, and use of interstate facilities in aid of racketeering.[38]
  • Plaintiffs were seeking over $5 million in damages for Valeant's overcharging on certain drugs while running prescriptions through Philidor.[38] These drugs were allegedly swapped for generic brand drugs by Valeant after they had been rejected by other pharmacies.
  • The allegations of this lawsuit have not been proven.

Current Status of Company and Key Players

Valeant Pharmaceuticals new Logo as Bausch Health Companies Inc.

Valeant is now called Bausch Health.[6] In May of 2022 Joe Papa was replaced as CEO by Thomas Appio, who continues to serve as the CEO of Bausch Health.[39] They had just recently won a legal dispute against Norwich Pharmaceuticals over patent infringement for a drug called Xifaxan (rifaximin) that is used for the reduction in risk of hepatic encephalopathy recurrence. This allows Bausch Health to have exclusive production and sale of the drug until 2029.[40] Bausch Health has also started a partnership with Alex Rodriguez through their oral health business by the name of OraPharma. This partnership was created to raise awareness for gum disease.[41]

  • Michael Pearson resigned as CEO from Valeant in May of 2016, but continued to work as a consultant for them in 2017.[42] He ended up having to pay $250,000 dollars in civil penalties to the SEC in 2020.[43]
  • Howard Schiller resigned as CFO from Valeant in 2015 and ended up paying $100,000 in civil penalties to the SEC in 2020.[44]
  • Tanya Carro left Valeant Pharmaceuticals in October 2016[45] and now works as the executive vice president of Duchesnay Pharmaceuticals.[46] Carro ended up paying $75,000 in civil penalties to the SEC in 2020.[47]
  • Bill Ackman is still the CEO and actively manages Pershing Square Capital Management. Ackman has since grown his net worth to 4.3 billion dollars and has a focus on philanthropy. His foundation has committed to donating $500,000,000 to various charitable organizations such as the Innocence Project and Human Rights Watch.[48]

References

  1. ↑ 1.0 1.1 1.2 1.3 Seltzer, Jed (June 13, 2002). "ICN's Panic quits as CEO". The Globe and Mail. Retrieved March 17, 2024.
  2. ↑ PR Newswire (November 12, 2003). "ICN Pharmaceuticals, Inc. Changes Its Name To Valeant Pharmaceuticals International". PR Newswire. Retrieved March 17, 2024.
  3. ↑ 3.0 3.1 J. de la Merced, Michael (June 21, 2010). "U.S. and Canadian Drug Makers Agree to a $3.2 Billion Merger". The New York Times. Retrieved March 18, 2024.
  4. ↑ Kahn, Joseph (Aug. 12, 1999). "ICN Chairman Faces S.E.C. Fraud Charges". The New York Times. Retrieved March 18, 2024. Check date values in: |date= (help)
  5. ↑ 5.0 5.1 5.2 Reuters (March 21, 2016). "Shakeup at Valeant as longtime CEO Pearson leaving". Reuters. Retrieved March 17, 2024.
  6. ↑ 6.0 6.1 Bausch Health Companies Inc. (July 13, 2018). "Bausch Health Companies Inc. completes name change". Bausch Health. Retrieved March 17, 2024.
  7. ↑ Bausch Health. (2022, May 6). Bausch Health Announces Thomas J. Appio As Chief Executive Officer. https://ir.bauschhealth.com/news-releases/2022/05-06-2022-170831954
  8. ↑ Bausch Health. (2023). 2022 Annual Report. https://ir.bauschhealth.com/~/media/Files/V/Valeant-IR/reports-and-presentations/ny20007033x3-ars-bausch-health-edgar-asfiled.pdf
  9. ↑ SEC. (July 31, 2025). UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION in the matter of J. Michael Pearson. https://www.sec.gov/files/litigation/admin/2020/33-10810.pdf
  10. ↑ 10.0 10.1 10.2 10.3 10.4 10.5 10.6 Surowiecki, James (March 28, 2016). "The Roll-Up Racket". The New Yorker. Retrieved March 17, 2024.
  11. ↑ 11.0 11.1 11.2 The Associated Press (Apr 27, 2016). "Valeant Pharmaceuticals blasted by U.S. lawmakers over drug price hikes". CBC. Retrieved March 18, 2024.
  12. ↑ Higgins-Dunn, Noah (Sep 10, 2021). "Bausch pays whopping $300M to settle Glumetza pay-for-delay lawsuit after 800% price hike". Fierce Pharma. Retrieved March 18, 2024.
  13. ↑ 13.0 13.1 13.2 13.3 United States Attorney's Office Southern District of New York (Tuesday, October 30, 2018). "Former Valeant Executive And Former Philidor CEO Sentenced For Illegal Kickback Scheme". Retrieved March 18, 2024. Check date values in: |date= (help)
  14. ↑ 14.0 14.1 14.2 14.3 Herbst-Bayliss, Svea (March 14, 2017). "Ackman's Pershing Square sells Valeant stake, takes $3 billion loss". Reuters. Retrieved March 17, 2024.
  15. ↑ 15.0 15.1 SEC. "UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION in the matter of Howard B. Schiller" (PDF). SEC. Retrieved March 25, 2024.
  16. ↑ Alexander, Lam, Doug, Eric (July 23, 2015). "Valeant passes RBC as Canada's largest company by market value". The Globe and Mail. Retrieved March 17, 2024.
  17. ↑ Gara, Antoine (October 21, 2015). "Valeant Plunges 30% After Short Seller Citron Research Makes Fraud Allegation". Forbest. Retrieved March 25th, 2024. Check date values in: |access-date= (help)
  18. ↑ La Roche, Julia (February 22, 2016). "Valeant is Tanking". Business Insider. Retrieved March 26, 2024.
  19. ↑ 19.0 19.1 The Securities and Exchange Commission (July 31, 2020). "In the Matter of VALEANT PHARMACEUTICALS INTERNATIONAL, INC., n/k/a BAUSCH HEALTH COMPANIES INC.," (PDF). SEC. Retrieved March 18, 2024. line feed character in |title= at position 17 (help)
  20. ↑ 20.0 20.1 "Valeant's Accounting Error a Warning Sign of Bigger Problems". The New York Times. Peter. Retrieved March 18, 2024. |first= missing |last= (help); Check date values in: |date= (help)
  21. ↑ 21.0 21.1 21.2 21.3 "Valeant board ousted CEO Pearson after weekend phone calls: Source". CNBC. Wang, Wapner. Retrieved March 25th, 2024. |first= missing |last= (help); Check date values in: |access-date=, |date= (help)
  22. ↑ 22.0 22.1 Gara, Antoine (Apr 25, 2016). "Former Perrigo CEO Joe Papa Will Replace Michael Pearson At Valeant Pharmaceuticals". Forbes. Retrieved March 18, 2024.
  23. ↑ Bloomberg News (Jul 20, 2016). "Bill Ackman defends Valeant Pharmaceutical's drug development program on investor call". Bloomberg. Retrieved March 18, 2024.
  24. ↑ Renauer, Cory (Dec 23, 2016). "Valeant Pharmaceuticals Stock Has Plunged 86% in 2016. When Will the Nightmare End?". The Motley Fool. Retrieved March 18, 2024.
  25. ↑ Sagonowsky, Eric (May 8, 2018). "Meet the new Valeant: Drugmaker drops tainted name to become Bausch Health in July rebrand". Fierce Pharma. Retrieved March 18, 2024.
  26. ↑ Helfand, Carly (March 28, 2017). "Ex-Valeant skipper Pearson claims he's owed $30M-plus in unpaid severance, consulting fees". Fierce Pharma. Retrieved March 25, 2024.
  27. ↑ Pagliarulo, Ned (March 21, 2016). "Citing 'improper conduct,' Valeant attempts to oust former CFO from board". Biopharma Dive. Retrieved March 25, 2024.
  28. ↑ Kuehner-Hebert, Katie (March 21, 2016). "Ex-Valeant CFO Denies 'Improper Conduct'". CFO. Retrieved March 25, 2024.
  29. ↑ 29.0 29.1 SEC (July 31, 2020). "UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION" (PDF). SEC. Retrieved March 25, 2024.
  30. ↑ Gara, Antoine (December 30, 2017). "Bill Ackman And Valeant Settle Allergan Insider Trading Lawsuit For $290 Million". Forbes.
  31. ↑ Pollack, Andrew (October 4, 2015). "Valeant's Drug Price Strategy Enriches It, but Infuriates Patients and Lawmakers". The New York Times.
  32. ↑ Beasley, Deena (January 28, 2016). "Clinton targets Valeant price hikes in campaign appearance". Reuters.
  33. ↑ "Valeant Pharmaceuticals International eyes strategy change; senior managers face pay cut over debacle". Financial Post. April 29, 2016.
  34. ↑ "Pharmaceutical Company and Former Executives Charged With Misleading Financial Disclosures". Securities and Exchange Commission. July 31, 2020. Retrieved March 25, 2024.
  35. ↑ Freedman, Robert. "Pharma, former executives charged with misleading financial disclosures". CFO Dive. Retrieved March 18, 2024.
  36. ↑ "Bausch Health Resolves Legacy SEC Investigation". Bausch Health. July 31, 2020. Retrieved March 25, 2024.
  37. ↑ 37.0 37.1 "Former Valeant Executive And Former Philidor CEO Sentenced For Illegal Kickback Scheme". United States Attorney's Office Southern District of New York. October 30, 2018. Retrieved March 18, 2024.
  38. ↑ 38.0 38.1 38.2 "Valeant accused of racketeering in class-action lawsuit from N.Y. health funds". Montreal Gazette. August 29, 2016. Retrieved March 14, 2024.
  39. ↑ "Bausch Health Announces Thomas J. Appio As Chief Executive Officer". PR Newswire. May 06, 2022. Retrieved March 24th. Check date values in: |access-date=, |date= (help)
  40. ↑ "Court upholds Bausch Health victory in Xifaxan fight; Norwich generic blocked until 2029". Healio Gastroenterology. May 23, 2023. Retrieved March 24, 2024.
  41. ↑ Adams, Ben (June 1, 2023). "Bausch's OraPharma business takes to the plate with Alex Rodriguez as it looks to hit a home run against gum disease". Fierce Pharma. Retrieved March 24, 2023.
  42. ↑ "Valeant's Former C.E.O to Receive $9 Million Severance". The New York Times. May 31, 2016. Retrieved March 23, 2024.
  43. ↑ Pagliarulo, Ned (August 3, 2020). "Bausch Health to pay $45M to settle US charges over Valeant-era accounting". BioPharma Dive. Retrieved March 23, 2024.
  44. ↑ "Pharmaceutical Company and Former Executives Charged With Misleading Financial Disclosures". U.S. Securities and Exchange Commission. July 31, 2020. Retrieved March 23, 2024.
  45. ↑ https://www.sec.gov/files/litigation/admin/2020/33-10812.pdf
  46. ↑ "About Us". Duchesnay Pharmaceutical Group. 2024. Retrieved March 24, 2023.
  47. ↑ Sullivan, Thomas (August 26, 2020). "Bausch Health (FKA Valeant Pharmaceuticals) Agrees to $45 Million SEC Settlement". Policy & Medicine. Retrieved March 23, 2024.
  48. ↑ "William Ackman". Forbes. March 26, 2024. Retrieved March 26, 2024.
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