Valeant Said to Make Late Payments on $17 Million to PDL

Have Valeant's Shares Fallen Too Far?
  • PDL says payments due were received after third quarter
  • Royalty holder to exercise right to audit drug's results

PDL BioPharma Inc. said it wasn’t paid on time for about $17 million in royalties on a drug owned by Valeant Pharmaceuticals International Inc., and said it will ask for an audit on the medication’s financial results.

While the money involved is a tiny sliver of Valeant’s $10 billion in annual sales, the situation represents a new distraction for a drugmaker already facing scrutiny of its business practices by investors and lawmakers.

PDL is owed royalty payments on some of Valeant’s sales of the diabetes drug Glumetza under the terms of a 2013 agreement. Valeant is required to send the regular payments to Depomed Inc., the original owner of the royalties, which then transfers them to PDL. That’s not what happened a few months ago, according to PDL and Depomed.

“While Valeant reported revenue for Glumetza of $53 million for the period ending Sept. 30, 2015, it had not provided monthly reports or payments per its assumed contract during this period,” Peter Garcia, PDL’s chief financial officer, said on a conference call with investors on Wednesday. The company got $17 million in royalties in late October instead, Garcia said.

PDL expects to begin the audit by the end of the year, the company said Friday.

Valeant is supposed to pay out royalties to Depomed within 30 days of the close of each month, according to Chris Keenan, a Depomed spokesman. He said Depomed then sends the payments to PDL. In this case, Valeant was late on its July and August payments -- due at the end of August and September -- and Depomed didn’t receive them until October, when it forwarded the money to PDL, Keenan said.

“We haven’t had a problem up until now where there was an issue with things being late,” Keenan said by phone Thursday. “It’s our responsibility to flag them on this, and I believe we have.” He said he didn’t know why the payments from Valeant were late.

The company said it doesn’t know why the payments were late. “PDL has received no communication from Valeant or Depomed as to why payments and reporting were late and is working with Depomed to resolve this issue with Valeant going forward,” PDL said in a statement Friday.

October Payment

"Valeant pays Depomed royalties on Glumetza, and all amounts payable for Q3 were reported and remitted to Depomed by October 30,” Meghan Gavigan, an external spokeswoman for Valeant, said in an e-mail. She didn’t respond to questions about the claims that the company was late on a payment.

Valeant acquired Glumetza in its April purchase of Salix Pharmaceuticals Ltd. for $11.1 billion. The drugmaker increased the price of the drug, a once-daily pill designed to improve glycemic control in diabetic patients, 500 percent in the second quarter and an additional 50 percent in the third quarter, according to UBS research.

PDL wants to get more information of how much of those price increases Valeant has been able to pass on to customers after rebates, Chief Executive Officer John McLaughlin said on the conference call. That, along with the delayed royalties and Salix’s past inventory account errors, has prompted PDL to seek an audit, he said.

Valeant, based in Laval, Quebec, fell 14 percent to $78.77 at the close in New York after one of its top shareholders, Bill Ackman, told the Wall Street Journal his confidence in the company’s leadership had briefly wavered. The company has faced questions over how it prices its drugs and its relationship with Philidor Rx Services, a mail-order pharmacy that it cut ties with on Oct. 30. Members of Congress said Wednesday that they want to investigate Valeant’s pricing practices.

PDL makes the vast majority of its money from other companies’ sales. PDL pays an upfront sum, and sometimes agrees to conditional future payments, and in return it gets a cut of future drug sales. The company also charges other firms to make use of its patents. In the three months ending Sept. 30, 96 percent of the firm’s revenue came from such deals.

Shares of PDL, based in Incline Village, Nevada, near Lake Tahoe, fell 10 percent Thursday to $4.

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