Capitol Report: Ackman says Valeant regulatory compliance no worse than rest of pharma industry

Hedge fund Pershing Square Capital Manager and its founder Bill Ackman, one of the biggest shareholders of embattled pharmaceutical company Valeant Pharmaceuticals International Inc. VRX, -15.90% said Friday that Valeant is no worse than any other global pharmaceutical company.

Ackman told investors on a call that major drug companies have all weathered severe regulatory scrutiny, paid huge fines and accepted significant sanctions for illegal behavior—and survived.

So will Valeant, said Ackman.

“These penalties are very big but not designed to destroy a company,” he said.

Read: Valeant pharmacy cut off by two largest pharmacy-benefit managers in U.S.

No one wants another Arthur Andersen, Ackman reminded listeners on the call, which stretched to over three and a half hours. Ackman organized the call after Valeant held its own investor meeting Monday to defend itself against allegations of accounting improprieties, which have hammered its stock in recent weeks.

Ackman is certainly right about pharma’s penchant for getting into trouble with the law, indeed for breaking all kinds of laws, and paying through the nose for it. An update of pharmaceutical industry criminal and civil penalties as of 2012 by Public Citizen, the national nonprofit consumer advocacy organization, highlights the worst repeat offenders since 1991.

CompanyTotal Financial Penalties in Billions Number of Settlements External Auditor

GlaxoSmithKline PLC

$7.56

20

PwC

Pfizer Inc.

$2.96

15

KPMG

Johnson & Johnson

$2.33

14

PwC

Merck & Co. Inc.

$1.86

27

PwC

Abbott Laboratories

$1.82

12

EY

Eli Lilly & Co.

$1.71

13

EY

Schering-Plough

$1.34

7

PwC

AstraZeneca PLC

.$0.954

7

PwC

Takeda Pharmaceutical Co. Ltd.

$0.875

1

KPMG

Novartis AG

$0.793

12

PwC

Bristol Meyers Squibb Co.

$0.789

12

Deloitte

Mylan NV

$0.707

19

PwC

Data Source: Pharmaceutical Industry Criminal and Civil Penalties:An Update published September 27, 2012, and MarketWatch research. Valeant external auditor is PwC.

GlaxoSmithKline PLC GSK, +0.63% is also at the top of the list of largest settlements ever, paying $3 billion to the Justice Department for kickbacks, overcharging the government and unlawful product promotion.

The company signed a non-prosecution agreement with the Justice Department, agreeing to be under scrutiny for five years and to never commit the same crimes again. That was despite 19 settlements reached before 2012 that said they had not been deterred by monetary fines. Good thing the Chinese missed that, because they only fined GSK $500 million for bribery last year, and did not hold them to the promises of their U.S. non-prosecution agreement.

Abbott Laboratories ABT, -0.97% Johnson & Johnson JNJ, -0.34%  and Merck & Co. Inc. MRK, -0.38% have paid the next largest fines, also for unlawful promotion of products and kickbacks.

Since 2012, Novartis AG NVS, -0.58% has been accused of using kickbacks to boost the sales of two of its drugs, despite 12 prior settlements, and is set to beat GSK’s record and pay more than $3 billion to get out of jail free. Endo Pharmaceuticals EO7, +15.42% settled with the FDA in 2014 for $192 million and agreed to a 30-month deferred prosecution agreement, promising never to commit the same crimes.

Pfizer Inc. PFE, -2.73% which had 14 prior settlements, settled with the federal government on Foreign Corrupt Practices Act corruption and bribery charges, paying $60 million in 2012. Pfizer was put on a two-year lwatch list.

Ackman tried to put investor worries to rest about any potential fines Valeant may have to pay, “not to minimize them,” he said, but to contrast what looks to him like the cost of doing business in the pharma industry with what his firm sees as the enormous upside potential to Valeant’s share price.

“What’s the best part of investing in a company that’s been through a scandal?” asked Ackman rhetorically. “They will be that much more diligent going forward.”

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