Valeant Finishes Accounting and Philidor Review With No More Problems
Wednesday, April 06, 2016
Valeant Pharmaceuticals International Inc. on Tuesday said its internal review of how it accounted for revenue through mail-order pharmacy Philidor RX Services LLC is complete and that it didn't find any additional problems requiring restatement.
Valeant’s shares rose 10% to $28.73 on Tuesday.
The Canadian drug company plans to include the restated financials in its 10-K, which the firm reiterated is on schedule to file by April 29, though it has asked lenders for more time to avoid triggering a potential default.
“After conducting more than 70 interviews and reviewing over 1 million documents, the…committee has not identified any additional items requiring restatements beyond those matters previously disclosed,” Robert Ingram, chairman of the board and chair of the review committee, said Tuesday.
Valeant said it would dissolve the review committee, transferring oversight back to the board and its audit and risk committee.
Last month, Valeant confirmed it would have to restate past earnings because it had recognized a chunk of revenue too soon. It also suggested it had effectively counted some revenue twice.
The main accounting issue dogging Valeant is how it accounted for revenue through Philidor, with which it had close ties. If the ties were as close as they proved to be, revenue shouldn’t have been counted until drugs reached the patient, not when Valeant delivered the drugs to Philidor, the company acknowledged and accountants have said.
Valeant had said in February it should have waited to recognize $58 million in revenue through Philidor, which it said it wrongly booked upon delivery to Philidor rather than dispensation to customers. Much of that amount should have been booked in 2015 rather than 2014, Valeant said.
The company did switch in December 2014 to waiting longer, once it had acquired an option to buy Philidor and started consolidating the pharmacy’s finances as part of its own.
Valeant elaborated last month that some sales before the option were “not executed in the normal course of business,” including sales executed at a time when the company was expecting the option agreement. It should have waited to book the revenue on those sales until the medications were dispensed, it said.
Last month, Valeant moved to replace longtime Chief Executive Michael Pearson, part of a series of steps to regain credibility and show investors it is committed to a fresh start after months of failed attempts.
The company is also seeking the resignation of board member and former Chief Financial Officer Howard Schiller, who signed off on the earnings statements Valeant is now withdrawing. Mr. Schiller has fired back and hired lawyers, denying the “improper conduct” of which the company accused him and declining to step down.
Valeant is pointing much blame at Mr. Schiller, who was Mr. Pearson’s partner in driving Valeant’s rise and who served as interim chief executive in Mr. Pearson’s absence this year. His 3 1/2-year tenure as CFO, which concluded when he left last spring, included the periods for which Valeant is restating earnings.
But even as it pointed the finger at two individuals, Valeant has said its accounting problems were rooted in broader cultural issues.
It said it had concluded that “the tone at the top of the organization and the performance-based environment at the company, where challenging targets were set and achieving those targets was a key performance expectation” may have contributed to improper financial reporting.
Valeant also has handed a board seat to activist investor William Ackman, whose hedge fund has been hurt by its 9% ownership of Valeant shares as they lost almost 90% from their August high.
Source : wsj.com
