Tuesday, October 27, 2015

Valeant's Quantum Entanglement Issue

Recently we learned that quantum entanglement is real. Despite their protestations, it is apparent that Valeant's actions at a distance still maintained a spooky financial and operation control over Philidor, and thus R&O.

Aside from the profound philosophical ramifications of considering whether financial control constitutes control, and whether a zero dollar option constitutes a fully consummated transaction there are some peculiarities in Valeant's statements on their call today. An embarrassment of riches. Before I cover the accounting issues in upcoming posts (particularly with respect to shareholder's equity) let's just focus on the easy stuff for now.

Valeant received a question(apparently from an investor) asking:
Did Philidor commit wrongdoing by shipping products to California residents without a California license? 

Valeant's answer:
We understand that: 
  • Philidor did not dispense products to patients in California 
  • Philidor only dispenses products to patients in states where Philidor has a non-resident license, and that does not include California 
  • Philidor has agreements with affiliated pharmacies that have California licenses and those pharmacies have dispensed products to patients in California
Aside from the fact they didn't actually answer the question I suppose it depends upon what the meaning of the word 'is' is.

I teased everybody last week that the Valeant/Philidor was much bigger than just access to California. 

Despite Valeants assurances otherwise, R&O really is about access to California...just as much as it isn't.

Valeant told us on their conference call that they have a no cost option for the next ten years to acquire Philidor, which owns R&O. To any normal person that isn't from Laval or Hatsboro that would mean they own Philidor, which owns R&O. Ergo any prescription sent by R&O would mean that it was actually sent by Philidor, which would actually mean it was sent by Valeant. 

Valeant's statement is particularly peculiar when you consider previously unreported data that shows California is the number one recipient of prescriptions fulfilled by R&O under the Philidor regime. Ah-hah! So it is about access to California.

Worse yet for Valeant, out of the 21,000+ prescriptions I've been able to analyze so far, R&O shipped to at least 33 states under the Philidor/Valeant regime. Oh, so...it's a lot about California, but not entirely? 

Valeant carefully minced their words to avoid the pitfall of Philidor's false statements made in connection with their rejected California Pharmacy license, but if you look at the data you'll immediately see that it was about access to California, and 32 other states.

As far as I can currently tell, out of the 33 states that R&O shipped to, about 2/3's had active Pharmacy licenses for both R&O and Philidor; the remaining 33% were split between R&O's license, Philidor's license or neither being licensed. 
(I have been unable to verify WA & MN)

Sidestepping the channel stuffing allegations, that presents a very simple conundrum for Valeant management, and thus Philidor managment and thus R&O management, which is how could you make the claim that a pharmacy you own(really, but not really) legally ship prescriptions to states which your pharmacy is not licensed? It also calls into question management's statements regarding Philidor's ability to ship in California.

Perhaps in some wormhole of FASB accounting standards or ancient bibliographic tomes on American corporate structures one could make an argument that you own a controlling financial interest, but don't actually own the underlying company, however in the real world if you and 6 of your closest friends on The Board say Philidor doesn't ship to states it doesn't have a license, Philidor better not ship to those states, and neither should any of it's consolidated subs. The only thing worse would be if neither had a license, which of course there are few instances of that too.

After analyzing over 21,000 individual prescription records (at an average cost of over $800/prescription) for less than three months of Valeant products moved through R&O, it is apparent that Mike Pearson's statement was correct that Valeant does not have operational control over R&O, so cut him some slack guys! I mean, obvs, if he had known about all these illegal shipments of drugs out of R&O while under the control of Phildor/Valeant, he wouldn't have made all those certified statements to the contrary, right???

If you're curious, the states analyzed are listed below and all 21000 prescriptions available at the following link.

CA 7678 35.32% YES NO NO
IL 6091 28.02% YES YES Dual Approval
CO 1303 5.99% YES YES Dual Approval
UT 908 4.18% YES YES Dual Approval
NV 876 4.03% YES YES Dual Approval
WA 856 3.94% UK UK UK
FL 711 3.27% YES YES Dual Approval
MS 522 2.40% YES YES Dual Approval
ID 518 2.38% YES YES Dual Approval
PA 506 2.33% NO YES NO
OH 338 1.55% YES YES Dual Approval
NY 187 0.86% YES YES Dual Approval
OK 155 0.71% YES YES Dual Approval
SD 141 0.65% YES NO NO
IA 135 0.62% YES YES Dual Approval
RI 117 0.54% YES YES Dual Approval
TX 114 0.52% YES YES Dual Approval
IN 111 0.51% YES YES Dual Approval
MI 97 0.45% YES YES Dual Approval
MO 68 0.31% YES YES Dual Approval
WI 60 0.28% YES YES Dual Approval
MN 57 0.26% UK UK UK
KS 43 0.20% YES YES Dual Approval
WY 42 0.19% YES NO NO
NJ 16 0.07% YES YES Dual Approval
VT 14 0.06% YES NO NO
AZ 13 0.06% NO YES NO
DE 5 0.02% YES YES Dual Approval
AK 1 0.00% YES YES NO
DC 1 0.00% YES YES Dual Approval
NH 1 0.00% YES YES Dual Approval
***Correction: a previous version of this table incorrectly reported some of the states R&O did not have a license

1 comment:

  1. R&O is licensed in both Minnesota (#: 264235) and in Washington (#: PHNR.FO.60406576).

    To find the Minnesota listing, you need to search for: r & o*
    To find the Washington listing, you need to search for: R and O
    You will see that both have the same business address.

    Do you happen to know if a locally licensed pharmacy must take delivery of a drug before it is dispensed to the patient? In other words, if a locally licensed pharmacy is out of stock of a given drug, can that order legally be fulfilled by a third party pharmacy without a local license on behalf of the locally licensed provider?