After weeks of delay, Valeant Pharmaceuticals on Friday filed its 2015 annual report with regulators, a significant move that will help the beleaguered drug maker avoid default on more than $30 billion in debt. At the same time, the company overhauled its board, shrinking it to 11 members from 14.
The steps come following withering scrutiny during a Senate hearing earlier this week in which both Michael Pearson, the outgoing Valeant chief executive, and Bill Ackman, the hedge fund investor and Valeant board member, admitted that jacking up the prices of drugs to sky-high amounts was a mistake. And during that session, Ackman promised that leadership, as well as pricing changes, are planned.
As expected, Pearson is stepping down from the board. His replacement, former Perrigo Chief Executive Joe Papa, begins work next week and was nominated to join the board, along with seven existing board members. This group includes Ackman, who heads Pershing Square Capital Management. The company also plans to bulk up its governance committee by adding three independent board members.
The filing, which contains some revisions to financial results for different portions of 2014 and 2015, will be picked through in coming days. But what was already a voluminous section devoted to “government and regulatory inquiries,” a euphemism for investigations, is rapidly expanding.
The latest entry refers to a subpoena that was received last week from the New Jersey State Bureau of Securities, which requested documents concerning Valeant’s relationship with Philidor Rx Services, the defunct mail-order pharmacy that the drug maker purportedly used to goose revenue. The Autorite des Marches Financiers, the Canadian securities regulator, made the same request earlier this month.
For those who may not recall, Philidor Rx was accused of using aggressive tactics to make sure that insurers paid for brand-name Valeant drugs instead of lower-cost generics. Short sellers — investors who bet against Valeant stock — alleged this maneuver distorted revenues. Moreover, Valeant for months failed to disclose it held an option to buy Philidor Rx.
And last month, the North Carolina Department of Justice sought documents concerning marketing, pricing, and patient assistance programs for three drugs. Valeant raised the price for two of them — the Nitropress and Isuprel heart drugs — by 525 percent and 212 percent, respectively, on the same day the company acquired them early last year.
New information was also disclosed about some of the many ongoing probes being run by other authorities. Investigations by US attorneys in New York and Massachusetts are focusing on patient assistance programs, the relationship with Philidor Rx, and accounting for sales to so-called specialty pharmacies.
Meanwhile, those nominated to the Valeant board include Robert Ingram, who led a board committee probe into the Philidor Rx relationship. And among the independent directors stepping down is Colleen Goggins, a former worldwide chair at Johnson & Johnson (JNJ), where she first worked with Pearson, who was a consultant to the health care giant at the time.