Former Valeant (VRX) CEO and CFO May Face Criminal Charges
11/1/2016 5:34:20 AM
November 1, 2016
By Alex Keown, BioSpace.com Breaking News Staff
WASHINGTON – Although they have both been out from their executive leadership roles at embattled Valeant Pharmaceuticals (VRX), J. Michael Pearson and Howard Schiller’s troubles are not over. Both men may be facing a criminal investigation probe by U.S. prosecutors, according to news reports.
Pearson and Schiller, the former chief executive and chief financial officers, respectively, are being scrutinized for possible accounting fraud related to the company’s ties to the now shuttered specialty pharmacy company, Philidor Rx Services, Bloomberg reported this morning. Unnamed sources “familiar with the matter,” in the U.S. Attorney's Office for the Southern District of New York, told Bloomberg that charges could be filed against Pearson and Schiller—and possibly others— within the next few weeks.
Valeant has been under investigation by the U.S. attorney’s office in New York since last year following news of the Philidor accounting practices became known. The company said it has been cooperating with the federal authorities, but cannot comment on the ongoing investigation. Additionally, Valeant said in a statement, that it cannot comment on possible rumored investigations, such as the Pearson and Schiller possibilities.
"Valeant takes these matters seriously and intends to uphold the highest standards of ethical conduct as we move forward with our mission to improve people's lives with our healthcare products,” the company said in its statement.
Shares of Valeant, which have not recovered since the Philidor problems came to light, dropped about 12 percent in late trading Monday after reports of the criminal probe were made public. However, this morning the stock is rebounding and is up more than 2 percent, trading at $18.23 per share.
Pearson left his CEO role at Valeant earlier this year and Schiller stepped down last year, although he came back briefly to serve as interim CEO while Pearson recuperated from pneumonia. Pearson was replaced by former Perrigo CEO Joseph Papa in April. While Pearson stepped down from his CEO spot, Valeant kept him on as a consultant—a consultant set to earn $15,000 per month.
Schiller, who briefly served as interim CEO after his tenure as CFO, became a scapegoat for Valeant’s board of directors. In March, shortly after the company announced that Pearson was being replaced as CEO, the company tacked much of financial troubles on Schiller. The company said the “improper conduct” of Schiller resulted in the provision of incorrect information to the company and “contributed to the misstatement of results” regarding Philidor. That followed a February announcement by Valeant that the company believed approximately $58 million of net revenues reported in the second half of 2014 “should not have been recognized upon delivery of product to Philidor.” But it wasn’t solely Schiller, Valeant also blamed other top executives. Valeant said “the tone at the top of the organization and the performance-based environment at the company, where challenging targets were set and achieving those targets was a key performance expectation, may have been contributing factors resulting in the company's improper revenue recognition.”
Philidor was accused of engaging in the “prescriptions made easy” practice. Under this practice, a pharmaceutical company encourages physicians to submit prescriptions for the high-priced medication to a mail-order pharmaceutical company associated with the parent pharmaceutical company. That pharmacy sends the medication to the patient and then directly deals with the insurance company. At one time, Philidor was responsible for nearly 7 percent of Valeant’s revenues.
Valeant eventually severed ties with Philidor, but that was after defending the company. Before breaking ties and shuttering Philidor, a company Valeant owned, Valeant described Philidor as a legitimate distribution network for Valeant and any sales are “accounted for as intercompany sales and are eliminated in consolidation.”
Not only has Valeant been probed due to its Philidor relationship, it is also facing scrutiny from U.S. lawmakers and two U.S. attorney’s offices over pricing of drugs acquired through acquisitions. Valeant is under fire for a price increase of two recently-acquired cardiac drugs, Nitropress and Isuprel.
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