After seeing his company’s stock price plunge amidst an investigation into its drug pricing practices and its secretive relationship with a specialty pharmacy company, Valeant Pharmaceuticals International CEO Michael Pearson said on Tuesday that he didn’t believe his company had done anything wrong. But in a rare statement of vulnerability for a CEO, he admitted that he really didn’t know.
“For a company of this size, it’s impossible to have full knowledge of everything that is going on at all times,” Pearson said on a conference call with investors and analysts scheduled to address problems at the company.
Pearson also said the company suffered from an insular culture, and that in the future he would listen more closely to his critics.
The statement might be true, but it probably won’t inspire much confidence in Pearson at a time when he needs it. Valeant is under investigation for improperly hiking drug prices and for its relationship with Philidor Rx Services, a mail-order pharmacy company accused of fraudulent practices. Valeant’s stock has dropped more than 50% in the past three months.
Valeant recently severed ties to the pharmacy company and has formed a special board committee to investigate the matter. That committee has hired an outside counsel.
Tuesday’s conference call offered little in terms of substance about the state of the board’s investigation. Pearson said it was ongoing and declined to answer questions about it, but he seemed to suggest that the board had not yet found any wrongdoing by Valeant.
“There have been a lot of allegations of misconduct, but to my understanding there has not been any misconduct that has been proven,” said Pearson, who also said he was told by Philidor staff that they had not broken any laws. “There was no financial fraud at Philidor.”
Pearson also avoided answering questions about how much breaking ties with Philidor would hurt his company’s sales. Valeant has said that Philidor, which sold Valeant drug directly to patients, represented around 7% of the company’s sales. But Philidor has been growing rapidly, and appeared to make up a large portion of Valeant’s sales growth.
At times, Pearson said severing ties with Philidor would hurt the company’s results. At others, he said he expected many of the customers who bought drugs through Philidor to instead buy them through pharmacies or from other mail-order services not controlled by Valeant. He did not address why Valeant decided to increase its ties to Philidor in the first place.
Valeant said it dermatology and ophthalmology units could be hurt the most.
As Valeant defends itself, Andrew Left, who runs Citron Research and was one of the critics who unearthed the relationship between Valeant and Philidor that kicked off Valeant’s recent stock plunge, has found a new target in the drug industry: Malinkrodt. Unlike Valeant, Citron has not put out a report on the company. But a tweet from the short seller caused the stock to plunge 22% yesterday.
Malinkrodt’s CEO has said his company’s practices are unlike those employed by Valeant. Nonetheless, last month an analyst from Morgan Stanley said its drug pricing strategies were likely to come under scrutiny in the wake of the criticism of Valeant.