MONTREAL – Valeant Pharmaceuticals says it is co-operating with authorities after a media report said it is under investigation by the U.S. Attorney’s office trying to determine whether its activities with a mail-order pharmacy were fraudulent.
The revelation undermines recent efforts by the Laval, Que.-based drugmaker to distance itself from its troubled past, which has seen it go from the toast of Bay Street to a company now struggling to rebuild physician, patient and investor trust.
The Wall Street Journal, citing people it said were familiar with the matter, reported Wednesday that the U.S. Attorney’s office in Manhattan is investigating whether Valeant defrauded insurers by hiding its relationship with Philidor Rx Services, a mail-order pharmacy based in Pennsylvania. The Journal didn’t identify its sources.
“We have been fully co-operating with the authorities throughout the investigation, and we are in frequent contact and continue to co-operate with the U.S. Attorney’s office for the Southern District of New York,” Valeant said in a statement following the report.
“We do not comment on rumours about investigations, and cannot comment on or speculate about the possible course of any ongoing investigation.”
The Office of the Attorney General in the U.S. declined comment.
Valeant’s relationship with Philidor was disclosed by a short-seller in October. At the time, then-CEO Michael Pearson said the company didn’t publicly reveal that affiliation earlier because it didn’t want to expose that to competitors.
Days later, Valeant (TSX:VRX) announced it was severing ties with the now-defunct Philidor, in which it had an ownership stake. It also restated earnings stemming from an accounting error related to its relationship with Philidor.
The news this week of the U.S. investigation adds to Valeant’s woes.
Valeant has said it is under investigation by the U.S. Attorney’s offices in New York and Massachusetts, receiving two federal subpoenas related to pricing, distribution and patient support services.
It is also under investigation by the U.S. Securities and Exchange Commission related to whether Salix, a company purchased by Valeant last year, misled investors about inventory levels.
Quebec’s securities regulator, L’Autorite des marches financiers, has requested documents from Valeant about an internal committee it set up to review Philidor, its relationship with the company, Valeant’s accounting practices and other matters.
An AMF official said it is monitoring developments in the U.S. and continues to collaborate with the SEC investigation.
Although the company has warned that investigations could result in fines, penalties and administrative sanctions, CEO Joe Papa told BNN Tuesday that the company has not set aside any money because its priority is to reduce debt and that any payments could be years away.
Industry observers expect any possible eventual settlements for these series of other probes could be costly.
“I think it’s going to be really expensive,” said Vicki Bryan, an analyst with corporate bond research company Gimme Credit.
“When you add up fines for all of these serious probes, it could go over $1 billion. That’s not unheard of in this space,” she said, referring to penalties faced by other pharmaceutical companies.
On Thursday, Valeant saw its shares fall by more than 11 per cent, settling at $31.76 on the Toronto Stock Exchange.
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