Delayed Valeant Earnings Reveal New Investigations At Embattled Pharmaceutical

Valeant Pharmaceuticals International’s long-awaited full-year 2015 earnings report was released Friday, closing a turbulent chapter for the company and bringing a huge sigh of relief to investors. But the restated report contained a few new surprises.

In addition to previously disclosed investigations, Valeant (NYSE:VRX) revealed probes by North Carolina’s Department of Justice and New Jersey’s securities regulator. These have joined a raft of other legal proceedings, including a Securities and Exchange Commission probe, class action lawsuits, a Massachusetts state investigation and inquiries by regulators in Canada, where Valeant is headquartered.

Valeant has weathered a tumultuous year, marked by criticism of its drug pricing model and inquiries over its relationships with specialty pharmacy companies. In the restated earnings, the drugmaker aired conclusions from an internal probe into Philidor RX, a since-shuttered specialty pharmacy that distributed drugs and managed insurer relations for Valeant.

As previously disclosed, the inquiry found that pressures from top executives had led the company to improperly book revenue stemming from Philidor, which has been associated with questionable sales practices.

As a result, 2014 net income was $33 million less than originally reported, partially offset with net income in 2015, which was $24 million higher than first thought. Valeant reported a full-year loss of $386 million for 2015; with one-time adjustments factored in, net income was $541 million for the year.

It wasn’t just Philidor where the “tone at the top” of the organization caused trouble. Demanding performance targets could have played a role in overloading inventories in Poland and Russia in an attempt to juice sales numbers, Valeant disclosed. In those locations, the drugmaker reported, warehouses currently house four to five months of inventories, compared to the three months of supplies that Valeant ordinarily ships to distributors.

The disclosure confirms reports last year over the existence of supply-chain irregularities in Eastern Europe, an indication that aggressive growth goals pushed by executives had far-reaching consequences.

Still, investors celebrated Friday, lifting Valeant shares in premarket trading. The company also announced the appointment of five new independent directors. Valeant stock opened 4 percent higher.

Friday's filing — which resolves worries that Valeant could default on its $30 billion in debt — marks a changing of the guard from the once-trusted leadership of outgoing Chief Executive Officer Michael Pearson and the embattled Chief Financial Officer Howard Schiller, who received much of the blame for Valeant’s stumbles.

In congressional testimony Wednesday, Pearson apologized for a business model he called “too aggressive” in its approach to pricing and acquisitions. “In hindsight, I regret pursuing transactions where a central premise was a planned increase in the prices of the medicines,” Pearson said.