February 12, 2016
By Alex Keown, BioSpace.com Breaking News Staff
LAVAL, Quebec – Embattled Valeant Pharmaceuticals uses “rare accounting maneuvers” to obscure the financials of its numerous deals, according to new research conducted by Marketwatch.
Valeant has been under fire for its aggressive acquisitions that often include price increases for drugs that are part of the deals. Over the past five years, Canada-based Valeant has spent more than $27 billion on acquisitions. According to the Marketwatch report, Valeant pays a substantial premium for companies.
“That purchase premium is booked to its goodwill account, but Valeant has not been retroactively adjusting net income and expense when it subsequently revises the balances it calculated at the time of acquisition,” Marketwatch reported.
The report, which was conducted in conjunction with Calcbench, said Valeant “has not adjusted income or expense in prior periods for the “measurement period adjustments” for any of its acquisitions since 2010.” The report further says that Valeant “makes ‘measurement period adjustments’ to goodwill and then says those adjustments are not material enough to bother adjusting the prior period financial statements.” The goodwill funds are supposed to be assigned to a reportable segment, but Marketwatch said Valeant has changed the numbers of reportable segments, which makes it difficult to track. For example, citing Valeant’s filings with the U.S. Securities and Exchange Commission, Marketwatch reported that about $59 million of the adjustments for the 2014 acquisitions of Probiotica and Solta, were made more than one year after their respective acquisition dates.
Marketwatch also said that Valeant uses nearly identical boilerplate language for each acquisition saying: “These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial statements.”
Valeant told Marketwatch that its “accounting treatment of goodwill adjustments complies with the applicable accounting standards.” Additionally, Valeant said “accounting rules permit aggregation of transactions that are not individually material and allow us to make measurement period adjustments within the allowable one-year timeframe, as disclosed in our SEC filings.”
Valeant, which has seen more than 50 percent of its stock value decline over the past six months, has been under scrutiny over its deal making and drug pricing. Valeant has been under attack for the pricing of some of its drugs, as well as its relationship with the specialty pharmacy company Philidor Rx Services that has drawn allegations of falsely inflating revenues, earning the company the moniker of the “pharmaceutical Enron,” by short-selling group Citron Inc. In an October release, Citron Research decried Valeant for its “unsavory business practices of massive price raises on pharmaceuticals acquired in a rapid succession of acquisitions, while slashing research and development.” Additionally, the Citron report criticized Valeant’s relationship with Pennsylvania-based Philidor Rx Services, a specialty pharmacy acquired by Valeant last year. Philidor engages 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.
Valeant 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, after the company acquired Salix Pharmaceuticals, Ltd.
Valeant then increased the prices for those drugs by 212 percent and 525 percent, respectively. Valeant acquired the two drugs in April.
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.
