On the bright side for Valeant, the company has wrapped up a couple of shareholder lawsuits it inherited with its purchase of GI company Salix. But on the other hand, it’s now millions of dollars deeper in the hole.
Last month, the embattled Canadian drugmaker agreed to a $210 million settlement that would resolve a pair of years-old disputes dating from Salix's solo days, Valeant said in a 10-K filed on Wednesday. Filed by Salix investors, the suits relate to a wholesaler pile-up that, in early 2015, forced the drugmaker to restate earnings—and before that, part ways with its CFO. The settlement has not been finalized and will need a court’s approval.
According to the lawsuits, Salix and certain former execs “violated federal securities laws in connection with Salix’s disclosures regarding certain products, including with respect to disclosures concerning historic wholesaler inventory levels, business prospects and demand, reserves and internal controls,” Valeant said.
It’s not the first Salix settlement Valeant’s been saddled with, and it may not be the last, either. Last June, the pharma agreed to fork over $54 million to settle federal and state marketing allegations for three drugs it picked up in 2015’s $10 billion buyout—including lead med Xifaxan.
And the SEC is still probing possible securities law violations stemming from Salix’s inventory snafu—a fact that sent Valeant shares south on Wednesday when a media report mistakenly tabbed the investigation as new news.
BREAKING: Valeant discloses SEC is conducting probe into possible securities law violations by Salix; $VRX down as much as 6.1%— CNBC Now (@CNBCnow) March 1, 2017
More: Valeant shares down 4.5% into the close; company has also amended its clawback policy; Salix disclosure was also made in prev. filing.— CNBC Now (@CNBCnow) March 1, 2017
In its 10-K, Valeant also disclosed broader "clawback" policies to apply to equity-based incentive pay for any employee, not only top management. The new policy says the company may force staffers to return that incentive pay if their "detrimental conduct" causes significant "financial, operational or reputational harm"—or if their "fraudulent or illegal misconduct" forces it to restate its financials.
Valeant has seen plenty of that lately, according to charges handed down by federal prosecutors last November. The feds charged Gary Tanner, a former Valeant exec, and Andrew Davenport, former CEO of Valeant-linked specialty pharmacy Philidor, with engineering a multimillion-dollar fraud and kickback scheme and defrauding Valeant itself in the process.
Valeant suffered plenty of reputational damage along the way; in October of 2015, a short seller accused the company of using its Philidor relationship to inflate its top line. Plus, an internal investigation triggered an earnings restatement early last year.
Valeant took a $90 million charge in the fourth quarter related to the most recent Salix settlement agreement, and it doesn’t need any more multimillion-dollar tabs—or any more problems at Salix. The company’s enormous debt pile, built up over years of rapid-fire M&A under former skipper J. Michael Pearson, spurred default concerns among investors last year, and a pair of divestments has only marginally reduced the burden.
Salix, meanwhile, has struggled mightily on the sales front, and late last year, a transaction that would’ve sent the division to Japan’s Takeda broke down over price disputes. In the wake of the canceled talks, Valeant announced a new sales-rep scale-up and primary-care push, but according to one analyst, rep poaching by a fellow GI drugmaker recently sapped the company’s ranks.