Nearly four months ago, Valeant set up an ad hoc committee to investigate claims that it used specialty pharmacy Philidor to inflate its top line. Now, that committee is back with some findings--and those findings mean Valeant ($VRX) is going to have to restate its earnings.
On Tuesday, the Canadian pharma said that it had "preliminarily identified" some 2014 sales to Philidor that look a little off--$58 million in net revenues, to be exact. Valeant believes those revenues, which it booked in the second half of 2014, shouldn't have been recognized until Philidor dispensed product to patients. Instead, Valeant tallied them up when it delivered the product to the pharmacy.
Overall, correcting those mistakes will shave 10 cents off 2014's GAAP EPS and increase 2015's EPS by 9 cents, the Quebec-based drugmaker said, and it expects the investigation to hold up the filing of its 10-K for 2015.
Philidor--which closed its doors after Valeant severed all ties with the company in late October--first came into the spotlight last fall, when short seller Citron Research accused Valeant of channel-stuffing. Since then, reports have surfaced that Valeant and Philidor were closely linked, with some Valeant employees even operating at Philidor under fake names.
Valeant also acknowledged late last year that it had acquired an option to purchase Philidor, though it never exercised that option, according to the company. And the accounting flubs announced Tuesday happened before Valeant acquired that option in December 2014, it said.
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| Interim Valeant CEO Howard Schiller |
It's not the first time lately that Valeant's accounting practices have come into question. Earlier this month, a congressional memo uncovered a May 2015 email from then-CFO Howard Schiller to then-CEO J. Michael Pearson pointing out that more of Valeant's Q1 growth last year had come from price hikes than Pearson had indicated to shareholders. Later, Valeant issued a statement noting that Pearson had potentially misspoken.
Now, all eyes will be on the former skipper, whose job has come into question more than once since Valeant's turmoil started. Currently, Pearson is on medical leave with pneumonia, and as Evercore ISI analyst Umer Raffat said in a Tuesday webinar, about half the investors he surveyed don't expect him to return.
Meanwhile, Schiller is running the show in his place, and for now, his tasks at hand include regaining investors' confidence and stabilizing the company's freefalling shares.
"The last few months have been challenging on many levels," he said in a statement. "We have made mistakes in the past and our focus today is on executing our business plan and rebuilding trust."
- read the release
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