• by Thom Forbes  @tforbes, March 14, 2016

Valeant Pharmaceuticals, whose shares have lost 73% of their value since August, according to Reuters, will finally be releasing its preliminary fourth-quarter earnings on Tuesday, several weeks late and dollars short of what it originally tallied for 2014 and 2015 because of “accounting errors.” 

The last few months have been a public relations nightmare for the company, whose CEO, Michael Pearson, returned to work after a severe bout of pneumonia on Feb. 29 with some directors casting about for his replacement and the federal government investigating its pricing practices.

In fact, as Katie Thomas points out in the New York Times, “each week seemingly brings a fresh set of headlines. Just this month, the company has added three new board members, lost a top executive, settled with a pharmacy that had questioned its tactics and defended itself against a congressional committee that said the company had refused to turn over documents.”

The Laval, Quebec-based company “became a poster child for criticism of high drug prices, and a target of congressional inquiries, after the Wall Street Journal reported the company was buying the rights to certain treatments and quickly raising their prices by substantial amounts,” the WSJ’s Jacquie McNish, Liz Hoffman and Jonathan D. Rockoff remind us in a piece published Friday. 

They revealed some of the thinking behind some board members desire to oust Pearson because his “intense focus on profits and fast-paced decision-making style were ill-suited for the mounting set of problems.” But Pearson reportedly told the board “no one … could match his close ties to benefit managers, insurers and doctors, and few shared his grasp of what drug discounts Valeant could afford.” The board decided to retain him as CEO while giving the chairman title to board member Robert A. Ingram.

“Valeant won't turn around until it restores its credibility, and it doesn't help to bring back the CEO who created the questions about financial reporting on his watch and his handling of questions about or,” Erik Gordon, a professor and pharmaceuticals analyst at the University of Michigan's Ross School of Business, told the Associated Press’ Linda A. Johnson at the time.

As the Financial Times’ David Crow, Miles Johnson and Harriet Agnew write, the Securities and Exchange Commission is investigating the company’s relationship with Philidor, “a now-defunct network of pharmacies that was controlled by Valeant and helped boost sales of some of its best-selling medicines.”

The mail order pharmacy “in turn controlled scores of tiny regional pharmacies,” they report.

“Valeant has strenuously denied wrongdoing, but at the end of last month it said it had booked almost $60 million of sales upon delivering medicines to Philidor, rather than waiting until the drugs were received by patients, as it should have done. As a result of the error, the company said it would have to restate earnings for 2014 and 2015.”

It’s also apparently refiguring its corporate strategy.

“Back when its stock soared and investors fawned — just six months ago — Valeant Pharmaceuticals billed itself as a new kind of drug company. It thrived on acquiring new drugs rather than inventing them, and generating big profits from raising prices on old, undervalued treatments,” writes the NYT’s Thomas. Now “the company has a different pitch — as an old-fashioned drug company,” she says, “talking more about investing in research and development and paying down the company’s more than $30 billion in debt.”

Hedge fund activist William Ackman, whose Pershing Square Capital Management is the third biggest Valeant shareholder, according to Forbes, has been an ardent supporter of the company despite its woes. It recently signaled its continued commitment with its vice chairman, Stephen Fraidin, joining the board along with  Fred Eshelman, founding chairman of Furiex Pharmaceuticals, and Thomas W. Ross, former president of the University of North Carolina.

“Either management will restore confidence in the reputation of the company with the public and the investment community or they won’t.… If they can’t, then one of two things will happen: New management will be brought in, or the business will be sold,” Ackman said last week, Forbes’ Antoine Gara reports.

But, as Bloomberg “Gadfly” columnist Max Nisen wrote a couple of weeks ago, a previous concession by Ackman “that Valeant's public and investor relations could use a bit of a revamp … [is] an understated take…. The company's PR and IR performance recently has been farcical, and its problems are much bigger than its communications strategy.”