- Bausch Health, the Canada-based drugmaker formerly known as Valeant Pharmaceuticals, agreed to pay $45 million to settle U.S. charges that it misled investors by improperly accounting for revenue channeled through a mail-order pharmacy it helped to set up.
- Michael Pearson, Valeant's once high-flying CEO, and two other former company executives also agreed to pay civil penalties to settle claims brought by the Securities and Exchange Commission.
- The agreements, announced Friday, mark a quiet close to an accounting scandal that four years ago led to Pearson's ouster and brought a sudden end to Valeant's meteoric rise on Wall Street. In a statement, Bausch said the settlement "fully resolved" the federal investigation.
From the fall of 2015 through the first half of 2016, Valeant was at the center of scrutiny on pharmaceutical business practices, having drawn the attention of regulators for suspect accounting, as well as the ire of lawmakers for aggressive price hikes.
The SEC charges covered both, alleging Valeant misstated revenue over a period of five quarters while also failing to disclose the impact of a 500% increase to the price of a single diabetes drug.
Much of Valeant's improper revenue recognition was tied to a mail-order pharmacy called Philidor, which the drugmaker helped establish and fund. Over time, drug sales through Philidor grew to account for a significant portion of Valeant's U.S. business, but the company did not fully disclose to investors the extent of its relationship for some time.
Notably, Valeant — with Pearson's blessing — adjusted its disclosure thresholds so it would not have to mention in regulatory filings its acquisition of an option to buy Philidor. After securing that option, business with Philidor was consolidated into Valeant's own books, changing how the company recognized revenue.
Following significant media, investor and regulatory attention, Valeant in April 2016 reduced previously stated earnings by $58 million.
The SEC order also found that Valeant misattributed the impact of a price increase for the diabetes drug Glumetza, spreading the resulting revenue across over 100 unrelated products.
Glumetza was one of several drugs Valeant sharply increased in price, leading to confrontations with Congress at the same time the company's accounting was being called into question. In April 2016, Pearson admitted that Valeant had made mistakes in how it priced its medicines and apologized to lawmakers.
Much of Valeant's business rise was predicated on serial dealmaking, rather than research and development, and on extreme price hikes. A buyout of Marathon Pharmaceuticals, for instance, was followed by price hikes of over 500% and 200% on the heart drugs Isuprel and Nitropress.
Under current CEO Joseph Papa, who took over for Pearson, Valeant changed its name to Bausch Health in May 2018, and has since recovered some of the tens of billions of dollars in market value that was erased in early 2016.
Neither the company, nor the former Valeant officials, admitted or denied the SEC charges.
Pearson will pay $250,000 in civil penalties to the SEC, as well as $450,000 to reimburse Valeant. Howard Schiller and Tanya Carro, the other executives who settled, will pay the SEC $100,000 and $75,000, respectively.