REUTERS/Athit Perawongmetha
And based on this statement Valeant just put out, the company is going to have a lot of explaining to do in terms of the language it has used to describe "growth."
Here's the part of the statement that matters (emphasis added):
- On the April 29 earnings call, in response to a question that was asked of CEO J. Michael Pearson as to how much price contributed to growth in the quarter, Mr. Pearson responded that "In terms of price volume, actually, volume was greater than price in terms of our growth." To the extent that Mr. Pearson was asked a question about total revenue growth his response would not have been accurate; it would accurately reflect price/volume mix for Top 20 product revenue growth for the period.
The thing is, then CEO Pearson, who is currently ill, was not asked a question about the top-20 list.
Here's what he was asked:
If you could just quantify a little bit how much was price versus volume that contributed to growth in 1Q and what do you factor in your full-year guidance, price versus volume?
Pearson responded:
In terms of price volume, actually, volume was greater than price in terms of our growth. Outside the United States, it's all volume. In fact, we have negative price outside the U.S. with FX. And in the U.S., it's shifting more to volume than price, and we expect that to continue...
Why would Valeant bring this up? Because in a huge document dump on Tuesday, Rep. Elijah Cummings (D-Maryland) - a ranking member of the Oversight Committee - released this tidbit from an email conversation between then CEO Pearson and interim CEO Howard Schiller, then the CFO.
They were talking about Q1 growth: "Excluding marathon, price represented about 60% of our growth. If you include marathon, price represents about 80%."
The committee meets the Street
Valeant bought two drugs from Marathon Pharmaceuticals in 2015: Isuprel and Nitropress. They are the two heart drugs that the Oversight Committee is especially interested in. Valeant increased the price of these drugs 525% and 212%, respectively.
Cummings and his committee want to know if those increases were set so that Valeant could reach revenue goals.
Valeant's growth rate has been a key issue dating back to before the pharmaceutical company's share-price collapse.
The latest update corrects an inconsistency. Either Pearson was wrong on the call, or Schiller's email was wrong. Now we know which one it is.
Pearson's response was inaccurate, and revenue growth was driven by price rather than volume.
That is not the sort of thing you want to be owning up to right before going in to a congressional hearing.