Valeant annual report reveals new issues, company overhauls board

Valeant Pharmaceuticals International Inc (VRX.TO) on Friday issued a 2015 financial report that met an important deadline for creditors, revealing new details on a range of financial and legal issues, and it also announced changes to its board.Shares in Valeant fell 4.0 percent to $33.81 in midday trading in New York on Friday and are well down from their all time high of $263.70 in August.The company has been facing scrutiny from the U.S. Congress, prosecutors, and regulators over its drug pricing, business practices and accounting practices. Valeant’s relationship with Philidor RX Services, which has been distributing its drugs, was terminated last year, hurting Valeant sales. The publication of the report satisfies demands from Valeant’s creditors, but also shows the difficult road ahead for the drugmaker, Wall Street analysts and investors said.”We think investors should sell on this catalyst since the business is quite weak and faces a number of headwinds,” Mizuho Securities analyst Irina Koffler said in a research note.

The annual report does not answer some more basic questions about what strategy Valeant will adopt, said David Neuhauser, managing director of Livermore Partners, which is short Valeant.”They continue to dig out of a very troubled situation that will take time,” Neuhauser said.In the report, Valeant restated its 2015 financial loss and 2014 earnings as it had forecast.

The report also revealed new details about the poor sales of its Addyi sexual dysfunction drug, financial details about its Xifaxin gastroenterology treatment, and also disclosed possible inventory issues on its pharmaceuticals in Poland and Russia.The company also revealed it is being investigated by the U.S. Department of Justice in North Carolina. The regulators have requested material relating to the production, marketing, distribution, sale and pricing of three of its life-saving drugs, Valeant said. Massachussetts and New York are also investigating similar issues. In a separate statement, Valeant said that seven current board members would not be standing for re-election at its June 14 shareholder meeting, including Howard Schiller, the company’s former Chief Financial Officer and G. Mason Morfit, who represents ValueAct. Robert Ingram will remain, along with ValueAct representative Robert Hale and several others including activist investor Bill Ackman.

Ackman, one of Valeant’s largest shareholders, had signaled the board changes at a Congressional hearing earlier this week where he spoke on Valeant’s behalf. He vowed that the company would change its business model and revisit certain price increases, including on two heart treatments.Valeant had said it would file its report by April 29, although it had an extension agreement with its creditors to delay the filing until June 11 to stave off a possible default on its $30 billion debt.Valeant had also said in February that it would restate results for 2014 and 2015, and on Friday, the Laval, Quebec-based company said no further restatements were required.(This story has been refiled to clarify that board changes were announced separately from annual report) (Reporting by Caroline Humer in New York, Rod Nickel in Winnipeg, Manitoba and Natalie Grover and Amrutha Penumudi in Bengaluru; Editing by Savio D’Souza)


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