New concerns surround Quebec-based drugmaker Valeant Pharmaceuticals

MONTREAL – Concerns about Valeant Pharmaceuticals were renewed Tuesday after it announced it had to restate its financial results for 2014 and 2015 while Moody’s Investor Service downgraded its outlook for the company.

The Quebec-based drugmaker said the source of the problem for its results involves US$58 million of sales to U.S. mail-order pharmacy Philidor that were recognized at the wrong time.

Valeant said it should have recognized the revenue when the products were dispensed to patients, rather than when delivered to Philidor, an associated company that sold some Valeant drugs before the two companies parted ways last October.

“We remain committed to improving reporting procedures, internal controls and transparency for our investors,” interim CEO Howard Schiller said in a statement late Monday.

Valeant estimated the company’s 2014 earnings will be reduced by 10 cents per share, in U.S. currency, and 2015 earnings will be increased by nine cents per share.

The amount involved is tiny compared with Valeant’s total revenue and profit in 2014. It reported US$8.3 billion of revenue and US$1.56 per share of earnings for the 12 months ended Dec. 31, 2014.

Still, Valeant’s announcement late Monday was cause for concern, said Vicki Bryan, an analyst with corporate bond research company Gimme Credit.

Bryan said in a note that the revelation supports concerns she and others have about Valeant’s “persistently poor disclosures and liberally opaque and inconsistent accounting,” adding that the cost of fixing those problems could be significant.

Other observers downplayed concerns.

RBC Capital Markets analyst Douglas Miehm wrote that the risk posed by Philidor is mostly mitigated, except for potential penalties. He said the successful implementation of a program with Walgreens, one of the biggest pharmacy retail chains in the U.S., to replace Philidor satisfies operational concerns.

Neil Maruoka of Canaccord Genuity said the market will continue to view everything about Valeant through a lens of suspicion but he awaits the findings of an internal investigation into its business relationship with Philidor.

“We do not believe that the restatement is a major concern at this point,” Maruoka said.

Later Tuesday, Moody’s revised its ratings outlook for Valeant to negative from stable. It said its decision came after Valeant also announced it was expecting to delay filing audited full-year results — a decision Schiller said was “very disappointing but necessary.”

Shares in Valeant got a positive bounce Tuesday, closing up more than five per cent at $109.40 on the Toronto Stock Exchange. The stock had fallen more than $25 per share in the previous three days.

The company plans to discuss unaudited fourth-quarter results on Monday.

Note to readers: This is a corrected story. An earlier version misspelled Philidor.