Litigation Details for Valeant Pharmaceuticals International, Inc. (S.D.N.Y. 2017)

Valeant Pharmaceuticals International, Inc. (S.D.N.Y. 2017)

Docket		Date Filed	2017-08-28
Court	District Court, S.D. New York	Date Terminated	2017-11-30
Cause	18:1341 Patent Infringement	Assigned To	Paul Adam Engelmayer
Jury Demand	None	Referred To
Patents	8,247,425; 8,420,663; 8,552,025; 8,822,490; 9,180,125; 9,669,096
Link to Docket	External link to docket

Details for Valeant Pharmaceuticals International, Inc. (S.D.N.Y. 2017)

Date Filed	Document No.	Description	Snippet	Link To Document
2017-08-28				External link to document
2017-08-28	1		infringement of U.S. Patent Nos. 8,247,425 (“the ’425 patent”); 8,420,663 (“the ’663 patent”); 8,552,025 (“…021964, the ’025 patent, the ’425 patent, the ’663 patent, the ’490 patent, the ’125 patent, and the ’096… of the ’425 patent, the ’663 patent, the ’025 patent, the ’490 patent, the ’125 patent, and the ’096… of the ’425 patent, the ’663 patent, the ’025 patent, the ’490 patent, the ’125 patent, and the ’096… of the ’425 patent, the ’663 patent, the ’025 patent, the ’490 patent, the ’125 patent, and the ’096	External link to document

Valeant Pharmaceuticals: A Landmark Case of Corporate Fraud and Investor Deception

Valeant Pharmaceuticals International, Inc., now known as Bausch Health Companies Inc., became the center of one of the most significant corporate fraud cases in recent history. This article delves into the complex web of deception, legal battles, and financial repercussions that unfolded between 2013 and 2015, resulting in billions of dollars in settlements and a complete overhaul of the company's operations and reputation.

The Rise and Fall of Valeant Pharmaceuticals

A Meteoric Rise

Valeant Pharmaceuticals experienced a dramatic surge in its stock price, climbing from $15 to over $262 per share between 2013 and 2015. This astronomical growth caught the attention of investors and market analysts alike, making Valeant a darling of Wall Street.

The Unraveling of a Fraudulent Scheme

However, the company's success was built on a foundation of deceptive practices and fraudulent activities. As these came to light, Valeant's stock price plummeted, wiping out over $100 billion in shareholder equity within a year.

The Fraudulent Practices Unveiled

Price Gouging and Artificial Inflation

Valeant's primary strategy involved acquiring existing drugs and dramatically increasing their prices. In 2015 alone, the company raised prices on its branded drugs by an average of 66%, five times more than its closest competitors[5].

The Secret Pharmacy Network

At the heart of Valeant's fraudulent scheme was a covert network of pharmacies, primarily operated through Philidor Rx Services. This network was used to:

1. Steer patients towards Valeant-branded products
2. Shield Valeant drugs from competition
3. Artificially inflate drug prices and sales volumes

Deceptive Accounting Practices

The company engaged in fictitious and improper accounting methods to conceal the true nature of its operations and financial condition from investors and regulators[2].

Legal Battles and Settlements

Class Action Lawsuits

Multiple class action lawsuits were filed against Valeant, its executives, and associated entities. These lawsuits alleged violations of federal securities laws, the Racketeer Influenced and Corrupt Organizations Act (RICO), and other statutes.

Record-Breaking Settlements

The Valeant settlement is the ninth-largest securities class action settlement ever and the largest to be reached against a pharmaceutical manufacturer[3].

1. U.S. Settlement: In January 2021, a $1.21 billion settlement was approved in the United States, marking the largest settlement ever against a pharmaceutical company[3].

2. Canadian Settlement: In November 2020, a CAD $94 million settlement was approved by the Superior Court of Québec[9].

Impact on Investors and Third-Party Payors

Investor Losses

The fraudulent practices led to massive financial losses for investors who had purchased Valeant securities during the class period (January 2, 2013 to November 9, 2015).

Third-Party Payor Claims

Health insurance companies, health maintenance organizations, and self-funded health and welfare benefit plans were also affected. A separate class action resulted in a $23.125 million settlement for these third-party payors[1].

Regulatory Scrutiny and Criminal Charges

Congressional Investigations

Valeant's practices drew intense scrutiny from regulatory bodies, with several executives being subpoenaed to testify before Congress.

Criminal Convictions

The founder and CEO of Philidor, along with a former Valeant employee, were convicted of engaging in an illegal kickback scheme and sentenced to prison[3].

The Aftermath and Corporate Transformation

Rebranding and Restructuring

In the wake of the scandal, Valeant rebranded itself as Bausch Health Companies Inc. and underwent significant restructuring to distance itself from its troubled past.

Stock Price Impact

The company's stock price, which had once soared to $262 per share, plummeted to as low as $8.50 per share following the revelations[3].

Lessons for Investors and Corporate Governance

Red Flags in Pharmaceutical Pricing

The Valeant case highlights the importance of scrutinizing unusual pricing practices in the pharmaceutical industry, especially when price increases significantly outpace industry norms.

The Importance of Transparency

The scandal underscores the critical need for transparency in corporate operations, particularly concerning relationships with distributors and pharmacies.

Due Diligence in Mergers and Acquisitions

Valeant's aggressive acquisition strategy should serve as a cautionary tale for investors to thoroughly examine the sustainability and ethics of rapid growth through acquisitions.

The Role of Whistleblowers and Investigative Journalism

Breaking the Story

Investigative journalism played a crucial role in exposing Valeant's fraudulent practices, with publications like The New York Times bringing key information to light[4].

The Importance of Corporate Whistleblowers

The case highlights the vital role that whistleblowers can play in exposing corporate fraud and protecting investors and consumers.

Legal Implications and Precedents

Strengthening Securities Laws

The Valeant case has led to discussions about strengthening securities laws and regulations to prevent similar fraudulent schemes in the future.

Impact on Pharmaceutical Industry Practices

The case has had a ripple effect throughout the pharmaceutical industry, prompting increased scrutiny of pricing practices and relationships with specialty pharmacies.

Key Takeaways

1. Valeant Pharmaceuticals engaged in a complex fraudulent scheme involving price gouging, secret pharmacy networks, and deceptive accounting practices.

2. The company's fraudulent activities resulted in multiple class action lawsuits and record-breaking settlements totaling over $1.3 billion.

3. The scandal led to significant regulatory scrutiny, criminal convictions, and a complete overhaul of the company's operations and branding.

4. The case serves as a cautionary tale for investors and highlights the importance of transparency and ethical practices in corporate governance.

5. Investigative journalism and whistleblowers played crucial roles in exposing the fraud, underscoring their importance in maintaining corporate accountability.

FAQs

1. What was the main fraudulent practice Valeant Pharmaceuticals engaged in? Valeant's primary fraudulent practice involved using a secret network of pharmacies to artificially inflate drug prices and sales volumes while shielding its products from competition.

2. How much did Valeant settle for in the U.S. class action lawsuit? Valeant settled for $1.21 billion in the U.S. class action lawsuit, making it the largest settlement ever reached against a pharmaceutical manufacturer.

3. What happened to Valeant Pharmaceuticals after the scandal? Following the scandal, Valeant rebranded itself as Bausch Health Companies Inc., underwent significant restructuring, and saw its stock price plummet from a high of $262 to as low as $8.50 per share.

4. Were any individuals criminally charged in relation to the Valeant scandal? Yes, the founder and CEO of Philidor (a pharmacy associated with Valeant) and a former Valeant employee were convicted of engaging in an illegal kickback scheme and sentenced to prison.

5. What impact did the Valeant case have on the pharmaceutical industry? The case led to increased scrutiny of pricing practices and relationships with specialty pharmacies throughout the pharmaceutical industry, prompting discussions about strengthening regulations to prevent similar fraudulent schemes.

Sources cited: [1] http://www.blbglaw.com/cases-investigations/valeant-pharmaceuticals [2] https://casetext.com/case/t-rowe-price-growth-stock-fund-inc-v-valeant-pharms-intl-inc [3] https://www.rgrdlaw.com/cases-in-re-valeant-pharms-intl-inc-sec.html [4] https://casetext.com/case/in-re-valeant-pharm-intl-inc-sec-litig-4 [5] https://www.seegerweiss.com/securities-fraud/valeant-pharmaceuticals-drug-cost-inflation-litigation/ [9] https://www.broadridge.com/report/valeant-pharmaceuticals-international-inc-securities-class-action