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Valeant Caught Up in 33 Lawsuits After Acquiring J&J Product Made With Talc

Drugmaker Hoping Johnson & Johnson Will Compensate It For Litigation Costs
Valeant
Valeant Valeant

BRIDGEWATER, NJ—When Valeant, the scandal-ridden pharmaceutical giant, acquired Johnson & Johnson’s Shower to Shower body product in 2012, it didn’t foresee being up against more than 30 lawsuits claiming that talc—an ingredient in the product—could cause cancer.

But news broke on May 9 that Valeant believes J&J is obligated to pay for its legal defense and compensate Valeant, according to a transcript of Valeant’s first quarter earnings call.

“We have provided Johnson & Johnson with notice that the various lawsuits filed against Valeant relating to Shower to Shower,” CEO Joseph Papa said on the call.

According to a Barron’s report, Wells Fargo analyst David Maris studied one of Valeant’s 2016 regulatory filings and learned that the drug maker is facing 33 lawsuits involving Shower to Shower.

“As we have stated previously, we believe Valeant's Shower to Shower suits as well as other suits and investigations represent potential liabilities and risks for Valeant,” wrote Maris, noting that the number of lawsuits "has been growing"

Brunswick-based Johnson & Johnson (J&J) "faces a deepening legal crisis connected to the product," according to the report, which noted a recent $110 million jury verdict for a woman who claimed to contract ovarian cancer from the product.

Barron's then reminds us that: “Last year, J&J lost several similar cases, including verdicts of $72 million, $70 million and $55 million, and faces multiple federal class action suits.”

For Valeant, the talc lawsuits are just one of several deeply serious problems facing the corporation.

There may be a federal criminal probe into the company, and that is just one of many deepening investigations and lawsuits they face.

According to the Barron's report, "Valeant has not reserved against losses for [their] insider trading suit, product liability suits, class action suits, SEC investigation, Southern District investigation, and IRS reviews.”

Things began to go awry for the pharma giant more than two years ago, when Valeant said in a regulatory filing it was being investigated by the U.S. Attorney’s Office for the District of Massachusetts, and the U.S. Attorney’s Office for the Southern District of New York.

The probe involved patient assistant programs, information it provided to the Centers for Medicare and Medicaid Services, drug pricing, its compliance program, employee compensation, and its former relationship a questionable online pharmacy, among other pharmacies.

Since then, those investigations have spread even wider, and the corporation has faced more and more lawsuits, plus new investigations have been launched by other law enforcement agencies.

In April 2016, the State of New Jersey's Division of Law and Public Saftety began looking into the company’s former relationship with Philidor Rx Services LLC, the infamous specialty mail order pharmacy that Valeant allegedly hid its ties to.

As we reported, Philidor investors have accused Valeant of using the pharmacy as a tool to brighten up its own finances.

Once insurance companies became suspicious of Philidor’s shady methods, they backed off doing business with it, and Valeant shut it down completely at the beginning of this year.

Philidor's failure reportedly caused Valeant’s near-death stock dive.

Valeant stock has tanked for a year-plus and is now worth maybe 10 percent of what it was valued at its peak in August 2015, and has said that its debt is about $30 billion.

On November 3, Valeant received a Food and Drug Administration (FDA) warning letter. The FDA sited a handful of failures related to quality control processes at its Rochester, New York, facility, where it makes medical devices and products for Valeant’s Bausch + Lomb unit.

The FDA warning adds to manufacturing violations cited by the FDA this past summer at another Valeant facility in Tampa, Florida. Those violations have reportedly blocked the company from getting approval for its eye drug Vesneo.

"We did receive a warning letter for our Rochester, New York site, secondary to inspections in February 2016 and September 2016," said Papa on an earnings call that was conveniently held on Election Day, perhaps in the hopes of attracting less attention.

"We take this issue very seriously and are working with the FDA to resolve it as soon as possible. To be clear, this does not impact production or sales of our Bausch + Lomb products."

The company's leaders are still optimistic, however.

“We continue to make progress in resolving the company's legacy legal matters,” said Papas on the first-quarter earnings call.  “As you know, we settled the Salix class-action litigation last quarter, and separately, we've increased our legal reserve by $76 million this quarter.”

While an office in the Garden State serves as Valeant's U.S. headquarters, employees with the Canadian pharma could be feeling a bit unnerved given the pharma's mounting problems these days.

The embattled drug company isn’t hiding at least 10 investigations it’s embroiled in, at least not from investors who read its quarterly U.S. Securities and Exchange Commission (SEC) regulatory filings.

Since the Department of Justice Civil Division’s investigation in September 2015 regarding violations of the False Claims Act describing how Valeant’s Biovail pharma unit derived average manufacturer prices, officials have also initiated at least nine other investigations.

Without doubt, Valeant is also being watched after its price-hiking strategies got the company in trouble with Congress last year.

A subpoena issued in the Garden State’s investigation seeks information on the “accounting treatment for sales to Philidor,” Valeant’s financial reporting, public disclosures and other matters, according to a regulatory filing. But Valeant noted that it is cooperating with the investigation.

Furthermore the drug company said in its most recent SEC filing that it had received yet another investigative subpoena in September 2016, this time, from the California Department of Insurance.

Once again, the topic of interest was Valeant's ties to Philidor, plus its marketing and distribution to certain pharmacies in California. Again, Valeant said it is cooperating.

When Papa took the reigns as the new CEO, he said: “I continue to be encouraged by the commitment of our employees who work each day toward meeting our mission of helping improve people's lives through our healthcare products."

But the corporation’s ex-CEO J. Michael Pearson and ex-CFO Howard Schiller are facing a recent U.S. criminal probe that could “yield charges within weeks,” reports Bloomberg, citing unidentified people familiar with the matter.

The fraud case is mostly based on the pharma giant's deceptive accounting practices and secret former association with Philidor.

“We are in frequent contact and continue to cooperate with the U.S. Attorney’s Office for the Southern District of New York," Valeant said. "We do not comment on rumors about investigations, and cannot comment on or speculate about the possible course of any ongoing investigation."

Congress and other officials, have found that Valeant, and other pharma companies, used specialty pharmacies to bypass price controls set by Pharmacy Benefit Managers and Health Maintenance Organizations, and reportedly guided patients to branded drugs instead of the generics.

While a number of companies have close relationships with these pharmacies, Valeant went a step further and allegedly created its own pharmacy without disclosing the direct relationship.

Philidor would reportedly tell doctors and patients that it could help them with the paperwork for filling prescriptions. And by specifying the branded drug instead of the generic, it received greater payments from insurance carriers.

A class-action suit filed in the Garden State alleges that Valeant was Philidor’s only client. The suit involves violations of the federal securities laws and was filed by an attorney in South Orange just over a year ago.

“Valeant manufacturers expensive drugs and of late, has been increasing the price of the drugs,” says the suit, which demands a jury trial.

“Many health insurance carriers will not pay for coverage to patients or patients are subject to very high co-payments for Valeant’s drugs,” adds the suit.

“Specialty pharmacies, also known as third-party pharmacies, are a channel for pharmaceutical companies to sell high-priced drugs when the drugs are not covered by some consumers’ health insurance plans or which demand consumers to pay a high co-payment,” says the suit.

Moreover, a suit filed in May 2016 proposed a class action accusing Valeant and it executives of violating the Racketeer Influenced and Corrupt Organizations (RICO) Act, alleging a scheme to shield Valeant’s drugs from competition by using a “secret network of pharmacies.”

By September 2016, similar RICO actions were filed in the Garden State against Valeant and certain third-party payers of claims submitted by Philidor for some branded drugs during a nearly two-year period. But Valeant said in an SEC filing that it believes the claims are without merit and intends to defend itself.

“Through their fraudulent scheme, defendants obtained hundreds of millions of dollars in ill-gotten profits at the expense of the TPP [target product profile] class, whose members paid inflated prices for Valeant drugs that in many cases should never have been dispensed,” reads a suit filed in New Jersey by the Air Conditioning and Refrigeration Industry Health and Welfare Trust Fund as well as one other fund.

“Indeed, in 2015 alone, Valeant channeled nearly $500 million worth of its drugs through Philidor, its central pharmacy hub.”