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Valeant Pharmaceuticals Facing Lawsuit Filed by Former Investor Group

Lawsuit: Valeant Engaged in "Fraudulent Scheme" Costing Investors Billions of Dollars
Valeant Pharmaceuticals
Valeant Pharmaceuticals International, Inc. Valeant Pharmaceuticals

TRENTON, NJ–A large mutual-fund group has filed a lawsuit against Valeant Pharmaceuticals International Inc., alleging the company took part in “a fraudulent scheme” that cost it billions of dollars.

The investment group, T. Rowe Price Inc., which was formerly one of Valeant’s biggest investors, but sold most of its shares in May, is claiming the company’s operating methods exposed it to “massive risks” costing shareholders dearly.

The suit was filed in New Jersey federal court on August 15 and could spur similar cases against Valeant. It names former Valeant chairman and CEO, Michael Pearson, as well as five other current or former executives as defendants.

“This case arises from a fraudulent scheme by Valeant and its top executives to use a secret pharmacy network, deceptive pricing and reimbursement practices, and fictitious accounting to shield the company’s branded drugs from generic competition and artificially inflate the company’s revenues and profits,” reads a 200-page statement filed in the United States District Court for New Jersey.

Valeant is a Canadian-based drugmaker, but expanded its American headquarters in Bridgewater Township, nearly three years ago, in a 310,000-square-foot, eight-story, building located in the Somerset Corporate Center.

At the time, Valeant said it employed 400 people in the New Jersey office but planned to bring on another 500 employees over a five year period.

Pearson, said in 2013 that the Garden States “highly-qualified workforce” was a key reason the rapidly expanding pharma company chose to keep its American home in Jersey.

“New Jersey has been our U.S. home for over a decade now and we have found it to be an ideal business environment,” said Pearson in 2013.

Activist investor and board member William Ackman, of Pershing Square Capital Management, remains the largest Valeant stakeholder with a six and-a-quarter percent stake in Valeant.

The lawsuit alleges Valeant, via its now defunct NJ-based subsidiary, Philidor Rx LLC, a specialty services mail-order pharmacy, practiced deceptive pricing, reimbursement practices, and false accounting methods, while defrauding T. Rowe Price and other Valeant investors of billions.

Valeant is contending with a criminal investigation over its connection to Philidor, which allegedly pushed insurers and pharmacy-benefit managers to dish out reimbursements for some of its pricey medicines.

Valeant is also under investigation by the Securities and Exchange Commission, and being watched by members of the U.S. House of Representatives and Senate over inflating its drug prices.

The T. Rowe Price suit, which is not a class action, is not related to other ongoing class-action shareholder litigation in New Jersey. That litigation reportedly entails similar claims against the company; the Teachers Insurance and Annuity Association of America pension fund, a financial-services firm, is the lead plaintiff.

“We are aware of the filing and have not been served yet. This T. Rowe Price complaint repeats allegations and claims as in the pending securities putative class action brought against Valeant by TIAA-CREF [Teachers Insurance and Annuity Association of America and College Retirement Equities Fund]," said Valeant in a statement.

"As with the original complaint, which was filed in October 2015, Valeant intends to defend itself and cannot comment further on ongoing litigation,” the statement continues.

Indeed, news broke in October that Valeant and Philidor were collaborating, but Valeant actually owned the company. Valeant eventually broke away from Philidor completely, though.

Valeant stock, which has declined in value by nearly 90% over the past year, down from its one-year high $242 per share to just over $30 per share as of August 29. 

The ongoing probe into whether Valeant had been manipulating channels to push prescriptions through faster, escalated last week, as we learned that executives at Valeant and Philidor may have engaged in fraudulent activity with insurers.

And charges alleging fraudulent activity with those insurers, which didn’t know that Philidor and Valeant were, in effect, one unit, is pending.

At the pharmacy level, a pharmacist routinely selects the generic variety of a drug, if available, unless a doctor indicates the use of a branded variety. But Valeant reportedly took advantage, aggressively pushing the higher priced medications, in turn hurting insurers.

Earlier in August, Valeant said it was taking an investigation in New York seriously and intends to uphold high standards of ethical conduct.

“Valeant previously disclosed in October 2015 that the United States Attorney’s Office for the Southern District of New York commenced an investigation involving Valeant,” said the company in a statement saying they "have been fully cooperating with the authorities throughout the investigation."

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

T. Rowe Price declined to comment on the lawsuit.