(Bloomberg) — Striking a more reflective tone and pledging to listen to critics, Valeant Pharmaceuticals International Inc. Chief Executive Officer Mike Pearson sought to regain confidence from investors in remarks that painted a fuller picture of the drugmaker’s financial exposure to a controversial pharmacy partner.
In his first public comments since Valeant said it would cut ties with Philidor Rx Services, Pearson warned that the impact of the decision would meaningfully affect the dermatology business, which makes up almost a fifth of total revenue. On a conference call Tuesday, he said the company was working to forge better relationships with insurers and to create a new program to ensure patients could get and afford the company’s products.
“The past few weeks have been a painful learning experience for me personally, and I know it has been painful for many of you as well,” Pearson said.
Concerns about Philidor and other business practices by Valeant, such as how it prices its drugs, have turned the drugmaker from one of the market’s top-performing stocks into one of its worst. From 2010, Valeant shares rose more than 10-fold to peak in August. Since then, they have lost 67 percent of their value, as of Monday’s close.
“One of the consequences of such rapid growth is that you don’t always take the time to listen to what the broader world outside your company is saying,” Pearson said. “This has been a mistake on our part as a company and on my part as its leader. We’re going to fix that.”
That message was more conciliatory than Pearson’s comments in an Oct. 26 call, when the CEO first sought to deny allegations that the company was inflating sales figures through its relationship with Philidor. On that earlier call, while he acknowledged being slow to answer investors’ questions, he also lashed out at stock commentary site Citron Research, which he accused of the equivalent of yelling “Fire!” in a crowded theater.
Investors remained skeptical Tuesday. The shares slid 3 percent to $82.85 in early trading, headed for their first decline in the past three trading days.
Pearson said he couldn’t comment on a board investigation into the relationship with Philidor, though he said the pharmacy’s executives have assured him they did nothing wrong. Former Philidor employees have alleged that the pharmacy altered some doctors’ orders to specify that they wanted brand-name drugs instead of generics, a way to get larger reimbursements for Valeant from health insurers. Philidor said that it only filled prescriptions with medications that doctors and patients requested. Weeks before Valeant said it would cut ties with Philidor, the drugmaker was planning to expand the relationship, Bloomberg has reported.
“Other allegations were made, in terms of the practices of Philidor,” Pearson said Tuesday. “Management felt that given those allegations, given what was happening to our share price, that the best course of action was to cut ties with Philidor.”
Philidor has stopped adjudicating insurance claims and will wind down operations by Jan. 30, by which time Valeant will develop a new program to help patients get its drugs, Pearson said Tuesday. In the meantime, some prescriptions are being filled for free, he said.
“In the very short term, disruption in our dermatology business will be significant,” Pearson said on a conference call Tuesday. Dermatological sales were $465.5 million in the U.S. last quarter, out of total revenue of $2.79 billion. Philidor represented about $190 million in third-quarter sales, almost all of which were for dermatological products, Pearson said.
Bill Ackman, the billionaire hedge fund manager who runs Pershing Square Capital Management LP, is Valeant’s third-biggest holder and has been one of the drugmaker’s biggest defenders. On a conference call with investors Monday, Ackman called the company “largely a victim of fear and panic.”
Valeant said on Oct. 19 that it might sell its neurology drugs unit, would invest more in research and development, and was less likely to buy companies and then raise the prices of drugs acquired in the deal. Pearson said on Oct. 26 the Philidor issue had put the possible sale of the neurology unit “on the back burner.”
Valeant has said it will host an investor day and update financial forecasts before the end of the year.