Ex-Salix CEO, CFO Investigated for Misleading Investors About Drug Inventory Levels
Published: Feb 10, 2016
February 10, 2016
By Alex Keown, BioSpace.com Breaking News Staff
WASHINGTON – The U.S. Securities and Exchange Commission has opened an investigation into Salix Pharmaceuticals investigating if the company misled investors relating to drug inventory disclosures. Reuters reported this morning, citing people “familiar with the matter.”
According to the report regulators are focusing on “what roles former Salix Chief Executive Officer Carolyn Logan and former Chief Financial Officer Adam Derbyshire may have played in the disclosures.” Both Logan and Derbyshire resigned from Salix during the period of time it was being acquired by Valeant Pharmaceuticals .
Before the 2015 acquisition, Salix reported in 2014 inventory levels for Xifaxan, its irritable bowel syndrome treatment, as well as several other key drugs, had climbed to nine-month levels., Reuters reported. Derbyshire had initially reported inventory levels in the 10 to 12 week range, according to reports. Xifaxan is an antibiotic that is designed to pass through the stomach and into intestines without being absorbed into the bloodstream. Because of this design, the medication will not be effective in treating other ailments, only those in the intestines. Analysts say sales of Xifaxan could exceed $1 billion in yearly sales.
That same day Derbyshire resigned and the company reported it had “misstated wholesaler inventory drug levels,” the Triangle Business Journal reported. Those disclosures lead to an audit that revealed an overstatement of revenue and income, which forced the company to restate its entire 2013 financial results.
All of this occurred while North Carolina-based Salix was being courted by multiple pharmaceutical companies, including Allergan . The problems at Salix forced Allergan to reduce its offer, which Salix rejected. Following Allergan’s withdrawal, Canada-based Valeant stepped in and snapped up the company with its gastrointestinal pipeline.
Because Valeant acquired Salix, this could impact that company, which is already facing a number of state and federal investigations surrounding its drug pricing, including two cardiac drugs the company acquired from the Salix deal.
Valeant is 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, after the company acquired Salix. Valeant then increased the prices for those drugs by 212 percent and 525 percent, respectively. Valeant acquired the two drugs in April.
“From 2014 to 2015, Valeant increased the prices of more than 20 additional “U.S. Prescription Products” by more than 200%. Valeant raised the prices of several of these products multiple times from 2014 to 2015, in some cases by as much as 800%,” the U.S. House of Representatives' Committee on Oversight and Government Reform said in a memo.
In addition to the two cardiac drugs, Valeant has also been criticized for quadrupling the price of the 55-year-old drug Cuprimine, used in the treatment of Wilson disease. A New York Times article excoriated Valeant for its practice of increasing the price of drugs following an acquisition. According to a Deutsche Bank report, Valeant increased prices on its brand-name drugs an average of 66 percent, about five times more than its other competitors, the Times said.