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One pill makes you larger

26 October 2015 By Robert Cyran

Valeant Pharmaceuticals further tangled its web. The acquisitive $39 billion company tried on Monday to spell out its ties to drug distributors. Analysts didn’t ask – and a 90-page presentation and call with investors didn’t answer – why it obscured the dealings in the first place. The messy details also only go to confirm some fears about Valeant.

At issue most urgently is Philidor Rx Services, a company Valeant says it doesn’t own or control. Even so, Valeant paid $100 million in 2014 for an option to buy the pharmacy for nothing over the next 10 years. Nearly all of Philidor’s sales are of Valeant’s drugs, and Valeant consolidates its financial figures. Valeant also has the right to approve important roles at the firm.

The opaque structure is troubling. What’s more, the situation is more byzantine than originally imagined. Philidor has the right to buy a pharmacy called Isolani, which owns the right to buy R&O Pharmacy. Such a camouflaged trail can’t sit well with investors. The lack of clarity also makes it hard to ignore reports by the Wall Street Journal that Valeant employees used alternate identities while stationed at Philidor, and an R&O founder’s claims that Philidor and subsidiaries shipped drugs to states where they didn’t have a license.

Defenses offered by Valeant Chief Executive Mike Pearson mostly ring hollow. He claims the company didn’t bother disclosing the $100 million payment to buy Philidor because the matter was immaterial. That was a clear miscalculation. The nearly 40 percent fall in Valeant’s stock since the relationship emerged, and a quickly assembled conference call involving the top brass, is evidence enough.

Valeant will have to keep defending its dealings. The U.S. Department of Justice has issued a subpoena into possible violations of federal healthcare rules by subsidiary Bausch & Lomb. Prosecutors in Massachusetts and New York have opened investigations into Valeant’s patient-assistance programs. And the Federal Trade Commission is probing its acquisition of Paragon Holdings. The best that can be said of Valeant’s unsuccessful attempts to clear the air on Monday is that it might help the company see how much more explaining it has to do.


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