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Valeant Statement on D.H.E. 45 (UPDATED)

March 1, 2016

After being made aware of this patient’s story in January, we reached out to her to see if we could provide any assistance with the cost of the medicine, as we do for many patients through our patient assistance programs. She informed us that her insurance provider covers the drug, so it is not a significant out-of-pocket expenditure for her.

D.H.E. 45 is an injectable treatment for migraines that is primarily administered in the hospital setting.

The product was acquired in 2005, and a generic version of D.H.E. 45 has been available since 2003. Due to that competition, Valeant’s share of the overall market for D.H.E. 45 has declined significantly. In fact, we now have less than 1% percent of the market for this drug.

We expect 2016 net revenues of approximately $1 million for D.H.E. 45, or approximately 200 units sold.

Whenever the sales volume of a drug declines, manufacturers must consider pricing adjustments to keep production of the drug viable. Patients are able to choose generic versions of the drug, however, at significantly lower prices.

The chart below shows monthly unit sales of D.H.E. 45 by each of the three manufacturers. The generic version of D.H.E. 45 (manufactured by Perrigo) is widely available and outsells the branded product by more than 250 to 1.


In addition, we must purchase minimum sized batches from our contract manufacturer that far exceed what we sell (1,000 units versus 200 units).

When we make decisions about the pricing of any one drug, we do so in the overall context of our portfolio of over 1,600 products, including more than 200 prescription drugs in the United States, and the need to fund our robust research and development programs, our expanding U.S. manufacturing base, and our patient assistance programs. In 2016, we expect to invest approximately $400 million on R&D and $1 billion in our patient assistance programs that seek to ensure that out-of-pocket expenses do no prevent eligible patients from receiving medicines they need.


In addition to D.H.E. 45, Valeant also sells both the brand and an authorized generic for Migranal (dihydroergotamine mesylate, USP), a nasal spray used to treat an active migraine headache with or without aura. D.H.E. 45 and Migranal are different formulations with different mechanisms for delivery and although they do have the same active ingredient, the products are not used interchangeably and are manufactured for Valeant by different suppliers.

Valeant Statement on SEC Investigation

February 29, 2016

  • In response to media inquiries, Valeant confirmed that it has several ongoing investigations, including investigations by the US Attorney’s Offices for Massachusetts and the Southern District of New York, the SEC, and Congress. With respect to the SEC investigation the Company confirmed that it received a subpoena from the SEC in the fourth quarter of 2015 and, in the normal course, would have included this disclosure in its 2015 10-K. We do not have further detail to provide at this time.

Statement Regarding the Relative Impact of Price and Volume on Growth

February 3, 2016

Recent questions have been raised regarding comments made during Valeant’s First Quarter 2015 Earnings Call, on April 29, 2015, addressing the relative impact of price and volume on growth.  Here are the facts:

  1. On the Q1 2015 earnings call, the company provided directional price / volume mix for the Top 20 products for Q1. (See Slide #8 of the Q115 Earnings deck dated April 29, 2015) “Top 20 products, excluding newly acquired products (Provenge, Isuprel, Nitropress), grew 36% Q1 2015 over Q1 2014 – Majority of growth from volume.
  1. On the April 29 earnings call, in response to a question that was asked of CEO J. Michael Pearson as to how much price contributed to growth in the quarter, Mr. Pearson responded that “In terms of price volume, actually, volume was greater than price in terms of our growth.” To the extent that Mr. Pearson was asked a question about total revenue growth his response would not have been accurate; it would accurately reflect price/volume mix for Top 20 product revenue growth for the period.
  1. In the Q1 2015 10Q filed April 30, 2015, total revenue growth was described as follows: Total revenues increased $305 million, or 16%, to $2.19 billion in the first quarter of 2015. The growth in the Developed Markets was driven primarily by price, as significant volume increases in dermatology and eye health were offset by volume declines for certain neurology & other/generic products and for the Japan market. The growth in the Emerging Markets was driven entirely by volume, as price had a negative impact.
  1. Subsequently, in an email dated May 21, 2015, former Chief Financial Officer Howard Schiller referenced price vs volume mix for revenue growth in Q1 2015 as follows: “Excluding marathon, price represented about 60% of our growth. If you include marathon, price represents about 80%.”

Valeant disclosed actual price volume mix for same store sales organic growth on its Third Quarter 2015 Earnings call.  (See Slide 21 of Q3 2015 Earnings deck dated October 19, 2015), and has stated that, going forward, it intends to provide quantitative price volume disclosure on a same store sales organic growth basis for its full portfolio.

Statement Regarding Howard Schiller’s Employment Letter

February 3, 2016

  • Our agreement with Howard Schiller reflects his unique qualifications to serve as Valeant’s Interim CEO and his willingness to lead the company at this important time.  While we have agreed on an initial two-month period,  if the Board asks Howard to continue as Interim CEO at that point, he has indicated he would be willing to do so.
  • In setting compensation, we reviewed Howard’s qualifications and ability to lead the company at a time of intense public scrutiny, the commitment involved on his part, and CEO compensation metrics, and we believe the compensation reflects this.
  • Under the terms of the Employment Letter, Mr. Schiller is not entitled to participate in the Company’s annual incentive plan or receive additional grants under the Company’s long-term incentive plan (other than certain equity grants that he may be entitled to receive as a member of the Board).
  • Per the terms of the July 17 separation agreement between Mr. Schiller and Valeant, 100,000 PSUs would vest on the expiration or termination of the consulting period (in this case, January 6, 2016) subject to him providing reasonably requested consulting services and signing a general release of claims (which he did).
  • The PSUs did not vest on January 31, 2016, as erroneously reported in the media.

Valeant Statement on Oversight Committee Release of Documents

February 2, 2016

  • Before Valeant purchased Nitropress and Isuprel, it commissioned outside consultants to review the drugs’ pricing. Those consultants concluded that, given the significant reimbursements hospitals received under bundled rates for procedures, the prices of both drugs did not reflect their true value to hospitals and patients.We try to set our prices at the appropriate levels, but we also listen to the market. In this case, we’ve heard from hospitals, as well as from Congress, that we set the price for these two drugs too high, and we’ve responded by offering volume-based discounts of up to 30% for each of them.

    We are also making overall changes to how we run our business. Under our recent partnership with Walgreens we will be offering 10% price reductions on some of our most popular drugs and up to 95% reductions for a large number of our branded drugs for which there is a generic alternative. Going forward, we expect our growth to be driven more by volume than by price.

    When we set the price of any one drug, we do it in the overall context of our portfolio of approximately 1,800 products, including more than 200 prescription drugs in the United States, and the need to fund our robust companywide research and development programs, our expanding U.S. manufacturing base, and our patient assistance programs. In 2016, we expect to invest approximately $400 million on R&D, $484 million in expanding manufacturing in Rochester, NY, and $1 billion in our patient assistance programs that seek to ensure that out-of-pocket expenses do not prevent eligible patients from receiving medicines they need.


Valeant Response to Anonymous Seeking Alpha Article from 21 January 2016

January 25, 2016

1. The author’s allegations regarding the improper capitalization of operating expenses are incorrect.

  • Per our most recent 10-Q, the account is titled “Prepaid Expenses and Other Current Assets” and includes more than just prepaid expenses.
  • Other current assets as of 9/30/15 include restricted cash, marketable securities, assets held for disposal, royalties receivable, certain deferred tax assets, and other receivables.
  • Prepaid expenses include prepaid advertising, insurance, taxes, licenses, fees (such as FDA establishment fees) and rent.  The account also includes credits against future distribution services fees that are due from customers.  For example, prepaid advertising includes the advance purchase of media which is typically done at least one quarter in advance in order to receive the most favorable rates, and expensed when the media airs, typically in the subsequent quarter.  Insurance, taxes, licenses fees are generally paid annually and amortized over the course of the period to which they relate.
  • The balance in this account is expected to decrease in Q4 15 and Q1 16 (for example media purchases for the Xifaxan IBS-D commercial which began airing and will be expensed in Q4).

2. The allegation regarding Valeant’s post acquisition accounting for Salix’s Allowance for Product Returns and Rebates is false.  In Q3, Valeant recorded measurement period adjustments in the amount of $178.4M.  As described in the Q3 10-Q, these adjustments related to the following:

  • The measurement period adjustments primarily reflect: (i) a reduction in  acquired in-process research and development  (“IPR&D”) assets, specifically for the Oral Relistor® program based mainly on revised cost projections (see further discussion of IPR&D programs in (f) below), (ii) an increase in assumed contingent consideration resulting from further assessment of assumptions related to the probability-weighted cash flows and (iii) the tax impact of pre-tax measurement period adjustments as well as reclassifications of certain tax balances. The measurement period adjustments were made to reflect facts and circumstances existing as of the acquisition date, and did not result from intervening events subsequent to the acquisition date. These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial statements.
  • There were no measurement period adjustments or changes in the opening balance sheet amounts for rebates and returns. Valeant did update the disclosure in footnote g of the Salix business combination disclosure in the Q3 10-Q reflect the inclusion of $123M in gross to net balances that had previously been reported within other accrued liabilities accounts (amount reported in Q2 10-Q was $251).
  • In addition, the author’s allegation regarding the treatment of measurement period adjustments is incorrect.
  • In September 2015, the FASB issued ASU 2015-16 which is intended to simplify the accounting for measurement period adjustments.  The guidance is effective starting in 2016, however Valeant plans to early adopt the guidance, as permitted, in Q4 2015.  The guidance requires an acquirer to recognize adjustments to provisional amounts that are identified in the measurement period in the reporting period in which the adjustment amounts are determined.  The acquirer would record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of a change in the provisional balance sheet amounts, calculated as if the accounting had been completed as of the acquisition date.  The new guidance eliminates the requirement for the acquirer to retrospectively adjust previously reported financial statements to reflect these measurement period adjustments.  Measurement period adjustments related to items such as intangible assets would have an effect on earnings to be reported under this new guidance since there is subsequent amortization expense that would be impacted.  Conversely, measurement period adjustments to items such as allowances for returns/rebates would not have an effect on earnings to be reported under this new guidance as there is no immediate/automatic subsequent P&L impact like there is with amortization expense.

3. “Valeant’s Free Cash Flow seems to be far less than Cash Net Income”

  • Valeant provides a detailed cash flow statement as well as a supplemental adjusted cash flow from operations table in its press release which provide readers of the financial statements with details of the differences between Adjusted (Non-GAAP) Earnings and Cash Flow.

Op-ed by Robert Ingram and Howard Schiller, “How we’re fixing Valeant”

As featured on CNBC.com on January 20, 2016:

How we’re fixing Valeant

By Robert Ingram and Howard Schiller

The past several months have been extraordinarily challenging for our company, Valeant Pharmaceuticals. We’ve been attacked by short sellers, criticized by many peers in our own industry, and subjected to intense public scrutiny. Our stock price plummeted 70 percent before partially recovering. But we believe the experience will make us a better company.

Valeant has grown quickly over the last seven years, expanding from a small, sleepy business to one with more than $10 billion in sales in 100 countries. Along the way, we’ve often challenged industry convention. Partly because of that, we’ve earned our share of criticism. Some of that has been deserved, but much of it relies on misperceptions about who we are.

For example, citing our large number of acquisitions, some have called us a “hedge fund.” Nothing could be further from the truth. Valeant today is a multinational pharmaceutical company with strong organic growth, 21,000 employees, and 16 U.S. manufacturing facilities. In the U.S., we are a dermatology, gastrointestinal, ophthalmology and consumer health-care company.

We invest heavily in research and development, employing scientists, doctors, and other researchers in high-paying jobs. We have more than 200 active R&D programs at 43 different facilities, and in the past two years, we’ve launched 41 new prescription drugs, generic drugs and medical devices in the United States. This year we will spend about 8 percent of our U.S. pharmaceutical revenue on R&D and our record has consistently shown that we produce more with less than other pharmaceutical companies.

We also support R&D through our acquisitions, creating a flow of capital to small startups and encouraging research, risk-taking and innovation. This is the same model that has supercharged the tech industry in recent years, and, notably, is also being pursued by many of our larger rivals in the pharmaceutical industry.

Just as we have a responsibility to correct misperceptions about our company, however, we also must listen to criticism and respond when it’s appropriate. We are doing that, making changes in how we operate in a number of areas.

For example, last month we announced a new partnership with Walgreens that will deliver some of our most popular prescription drugs to patients at lower prices. In addition to cutting the prices of our branded dermatological and ophthalmological prescription medicines by an average of 10 percent within the next six to nine months, we’re going to begin offering many of our other branded drugs at generic prices. That will lower prices for those drugs by an average of 50 percent, and in some cases as much as 95 percent.

We’ve also begun offering volume-based discounts for our hospital-administered drugs with discounts up to 30 percent, including two for which our pricing has been particularly criticized, Nitropress and Isuprel. And we’re increasing our already large investment in patient co-pay programs that help patients with commercial insurance lower the out-of-pocket costs they pay to get the drugs they need.

We’ve tried to build a different kind of company over the past seven years, one that can deliver life-changing medicines to patients with greater speed and efficiency. We have not gotten everything right. But our model is succeeding in meeting our core mission – speeding up the delivery of innovative products to the doctors who prescribe them and the patients who need them. Our job now is to maintain our commitment to patients, correct our missteps, and move this company forward.

(Commentary by Robert Ingram, the interim chairman of Valeant Pharmaceuticals International, Inc., and Howard Schiller, Valeant’s interim CEO.)

Valeant Statement Regarding Norma Provencio’s Investment in Signalife

January 10, 2015

  • We understand that Ms. Provencio participated in a private placement in May 2003 and completely sold her position in 2004.  We also understand that Mr. Stein was neither an officer nor director of Signalife during the time period of Ms. Provencio’s investment. According to Mr. Stein’s indictment, his fraudulent activities began in July 2005.

Valeant Comment on Bloomberg News Report Regarding Wellbutrin XL

January 8, 2016

  • Valeant disclosed on October 26 that specialty pharmacies accounted for 7.2% of Valeant’s net revenue YTD.  This number included Philidor, which Valeant said at the time accounted for 5.9% of Valeant net revenue YTD, as well as Direct Success.
  • Valeant has no economic, ownership interest or rights to acquire Direct Success or any other specialty pharmacy.
  • The Wellbutrin XL Guarantee Program was designed to improve patients’ access to the branded medication at an affordable price, and to help ensure doctors are able to prescribe the medication they believe is most appropriate for their patients.  Under the program, Valeant offers a $0 co-pay for patients who doctors prefer they use the branded product.  Valeant also offers a $0 co-pay option for patients who obtain Wellbutrin XL through the traditional retail channel.
  • Wellbutrin XL is available through numerous channels, including the commercial channel, Medicare, Medicaid and the Department of Defense.  Valeant has approximately 1.5% of the total Wellbutrin XL bupropion market, a share that has declined significantly over the past few years, with 98.5% going generic, and the Wellbutrin XL Guarantee Program is the only specialty pharmacy relationship we have for Wellbutrin XL.
  • Sales of Wellbutrin XL through Direct Success accounted for less than 5% of Wellbutrin XL sales (~approximately $16M) in 2015, and although we expect continued growth in this channel, we do not expect the sales through this channel to be material.
  • Direct Success has no incentive to maximize reimbursement for Wellbutrin XL.  Approximately 60% of the scripts that Direct Success fills are cash scripts, and the remainder are commercially covered. Direct Success gets a fee per prescription and has a discount on the product, regardless of whether they get any money from insurance.

Response Statement on QLT Litigation

December 16, 2015

  • Yesterday, QLT, Inc. (“QLT”) filed an action in British Columbia against Valeant asserting claims with respect to an earnout relating to a 2012 acquisition, which earnout would have been due upon receipt by Valeant of all registrations required for the commercial sale of a laser. ‎ These claims were first asserted by QLT in 2013 based upon the unsupported claim that only one specific approval was required to trigger the earnout. At that time, Valeant flatly rejected the claim because all approvals required to commercially sell the laser had not been obtained.
  • In November 2015, after no attempt to pursue its contractual remedies ‎ and at a time that Valeant was in the news and experiencing substantial negative publicity, QLT sent a letter threatening to go public with its claims. Valeant immediately responded that it was deeply disappointed that QLT determined that the best way to pursue a frivolous two year old claim against Valeant was to threaten to make a public announcement. Valeant’s letter stated the following, “Given the current press surrounding Valeant, the age and status of our dispute and the fact that the Asset Purchase Agreement expressly precludes you from making public disclosure in the manner you contemplate, this can only be viewed as a bad faith, opportunistic attempt to damage Valeant in breach of your obligations under Section 10.7 of the Asset Purchase Agreement.” Valeant’s position has not changed, and QLT made its press release and filed its action after Valeant rejected QLT’s offer not to go public in exchange for $2 million.
  • Valeant does not believe that it owes QLT any amounts. Valeant intends to vigorously defend itself.