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Valeant to Walgreens: Hey, It’s Not Your Fault After All

Pershing Square's Bill Ackman and Valeant Pharmaceuticals International's Michael Pearson InterviewPershing Square's Bill Ackman and Valeant Pharmaceuticals International's Michael Pearson Interview
Michael Pearson, CEO of Valeant Pharmaceuticals.Photograph by Bloomberg — Getty Images

Valeant’s fourth quarter conference call on March 15 will long be remembered as the kind of public event that did more damage than it mitigated. CEO Michael Pearson had to announce the company missed analysts’ profit targets—Valeant added an extra stumble with a $600 million earnings typo in its press release—and the fact that those results were unaudited. But Pearson made the situation worse with a lack of specificity about the company’s ability to improve its numbers, and the announcement that its annual report, with audited numbers, would not be released any time soon, possibly triggering a breach of its bond agreements. Following the call, Valeant’s already-ailing stock price collapsed, dropping by 51% before trading up 3%, to about $35, on the morning of March 16.

Pearson also managed to slag his company’s new partner, Walgreens Boots Alliance, accusing it of not adequately communicating the terms of its partnership with Valeant, under which Walgreens will sell some of the drugs formerly distributed by the now-defunct Philidor. Said Pearson on the conference call: “I think Walgreens did not do a very good job explaining [how the program worked] and then there were aspects of the Walgreens programs that people didn’t like. So I think we’ve done a better job explaining.”

What Pearson neglected to mention was that Walgreens, led by global deal-master Stefano Pessina, basically saved Valeant’s bacon by picking up the distribution of many drugs that, without Philidor, would have no outlet. And Pessina made it clear back in January, in an interview with me, that Valeant’s drug prices would sell for lower prices than before–and that he was quite pleased with the terms. Says Adam Fein, president of Pembroke Consulting: “It shows Pessina and his team negotiating a better deal.”

 

 

In any case, Valeant seems to have rethought its earlier comment. When asked to elaborate on its criticism, Laurie Little, Valeant’s SVP and head of investor relations, sent Fortune the following statement: “As we said on the call yesterday, our branded access program with Walgreens is off to a terrific start. While there was an initial reaction to the program from some payers, we and Walgreens have been working to explain the features of the program to our channel partners and to address any concerns they may have had. Walgreens is an outstanding partner, and we look forward to continuing our mutually beneficial relationship.”

In response to this statement, Walgreens has decided to take the high road, it appears. Says a spokesperson: “We agree the program is off to a good start. We also were pleased that Valeant addressed some initial concerns from some payers regarding their program and it has been positively received.”

Still, there’s a lesson in there: when you’re down, maybe don’t bite the hand that feeds you.