Fund's $80B Valeant losses prompt lawsuit calling company a criminal enterprise

Valeant Pharmaceuticals and its former CEO Michael Pearson have been accused of a long list of nefarious activities. Now a mutual fund that claims it lost a mind-boggling $80 billion on its Valeant investments has rolled all of those into a lawsuit that alleges Valeant was a criminal enterprise.

The civil securities fraud lawsuit was filed in federal court in New Jersey by mutual fund Lord Abbett & Co. It names Valeant, Pearson, former CFOs Robert Rosiello and Howard Schiller, former controller Tanya Carro and Valeant’s accounting firm PwC.

It alleges securities violations, mail and wire fraud, and to top it off, racketeering under RICO, a provision that suggests criminal behavior and allows for tripling damages. And the mutual fund company's losses were tremendous. Lord Abbett bought Valeant notes between 2013 and 2015 and said that its shareholders "suffered massive economic losses" of more than $80 billion.  

The 162-page lawsuit runs through the now well-known history of Valeant and Pearson, but in colorful language it lays that history out as a well planned "criminal scheme."

It claims Valeant hired Pearson in 2008 for "his business acumen and his cut-throat tactics to realize even greater profits." It said he immediately gutted the company’s R&D as a low-margin operation, instead choosing to buy rare disease drugs with no competition to focus on "surreptitiously manipulating a labyrinthine healthcare system, and price exploitation of long-developed and off-patent drugs."  

To maintain growth, the suit points out that between 2008 and 2014, the company bought more than 100 companies, running up to $31 billion in debt, then claims Valeant used price gouging to generate cash. It points to how the company boosted the price of Cuprimine and Syprine, treatments for the rare Wilson’s disease, by nearly 5,800% and 3,200% respectively.

It outlines Valeant’s use of Philidor, a specialty pharmacy group it helped form, which the lawsuit said was needed to pull off its pricing scheme. It also references Valeant’s use of patient assistance programs, both issues that are being investigated by federal authorities. It accuses PwC of helping the company "conceal the relationship between Valeant and Philidor."

PwC declined to comment. 

The suit comes as the company, with a new executive team in place, is working desperately to unload assets to reduce debt, overcome litigation and concentrate on new drugs. In May it reported its efforts were going well enough to increase its 2017 earnings guidance to between $3.6 billion and $3.75 billion, up slightly from a previous range of $3.55 billion to $3.7 billion.

Valeant has been working to generate cash through divestitures, selling Dendreon for $820 million and some skincare brands for $1.3 billion. It recently was said to be near a $2 billion deal to sell its Bausch & Lomb eye surgery business to Germany-based Carl Zeiss Meditec.

That all is fairly small compared to the $30 billion debt load it still has.