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Timber Hill LLC, Et Al. V. Valeant Pharmaceuticals International, Inc., Et Al. 18-CV-10246-Class Action Complaint for Violations

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Timber Hill LLC, Et Al. V. Valeant Pharmaceuticals International, Inc., Et Al. 18-CV-10246-Class Action Complaint for Violations Case 3:18-cv-10246 Document 1 Filed 06/06/18 Page 1 of 172 PageID: 1 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY TIMBER HILL LLC, on behalf of itself and all others Civil Case No. ____________ similarly situated, Plaintiff, CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE v. FEDERAL SECURITIES LAWS VALEANT PHARMACEUTICALS DEMAND FOR JURY TRIAL INTERNATIONAL, INC., J. MICHAEL PEARSON, HOWARD B. SCHILLER, ROBERT L. ROSIELLO, DEBORAH JORN, ARI S. KELLEN and TANYA CARRO, Defendants. Case 3:18-cv-10246 Document 1 Filed 06/06/18 Page 2 of 172 PageID: 2 TABLE OF CONTENTS I. NATURE OF THE ACTION ............................................................................................. 2 II. JURISDICTION AND VENUE ....................................................................................... 10 III. PARTIES .......................................................................................................................... 11 A. Plaintiff ................................................................................................................. 11 B. The Corporate Defendant ...................................................................................... 11 C. The Management Defendants ............................................................................... 11 D. Relevant Non-Parties ............................................................................................ 13 IV. FACTUAL BACKGROUND ........................................................................................... 15 A. Valeant’s Acquisition-Centric Business Model .................................................... 15 B. Valeant’s Extraordinary Price Hikes .................................................................... 17 C. Valeant’s Use of a Secret Pharmacy Network ...................................................... 21 1. Philidor ...................................................................................................... 22 2. Valeant’s Other Secret Pharmacies ........................................................... 25 3. Valeant Used its Secret Pharmacy Network to Insulate its Branded Drugs from Generic Competition, Inflate Prices and Book Fictitious Sales .......................................................................................... 28 4. Valeant Exploits “Patient Assistance Programs” To Raise Prices............ 40 5. The R&O Lawsuit and the Initial Disclosure of Valeant and Philidor’s Fraudulent Arrangement .......................................................... 43 V. DEFENDANTS MISLED INVESTORS REGARDING VALEANT’S BUSINESS MODEL AND MANIPULATED THE COMPANY’S FINANCIAL RESULTS ......................................................................................................................... 47 A. Defendants Made Numerous False or Misleading Statements Regarding Valeant’s Business Model and Financial Results ................................................. 47 B. Defendants’ Statements Were False or Misleading When Made Because Valeant Was Engaged in a Fraudulent Scheme to Charge Exorbitant Prices for Its Drugs .......................................................................................................... 54 i Case 3:18-cv-10246 Document 1 Filed 06/06/18 Page 3 of 172 PageID: 3 1. Valeant’s Business Model Relied on Massively Increasing the Prices for Drugs it Acquired ..................................................................... 54 2. Defendants Further Concealed From Investors That Valeant Created a Secret Network of Captive Pharmacies to Insulate its Branded Drugs From Generic Competition, Inflate Prices and Book Fictitious Sales ................................................................................ 56 3. Defendants Also Concealed from Investors that Valeant Deceptively used “Patient Assistance Programs” to Facilitate its Fraudulent pricing scheme ........................................................................ 61 4. The R&O Pharmacy Lawsuit .................................................................... 64 VI. DEFENDANTS MISLED INVESTORS REGARDING VALEANT’S RELATIONSHIP WITH PHILIDOR AND OTHER PURPORTEDLY INDEPENDENT ENTITIES ............................................................................................ 67 A. Defendants Made False or Misleading Statements Regarding Valeant’s Control over Third-Party Distributors and Its Association with Variable Interest Entities. .................................................................................................... 67 B. Defendants’ Representations were False or Misleading When Made, in Light of Valeant’s Relationship with Philidor ...................................................... 68 VII. AS A RESULT OF DEFENDANTS’ MISCONDUCT, VALEANT’S FINANCIAL STATEMENTS WERE MATERIALLY MISSTATED AND IN VIOLATION OF GAAP................................................................................................... 69 A. Valeant Improperly Recognized Philidor Revenue .............................................. 70 B. Defendants Concealed the Impact of Philidor Transactions, as Well as the Massive Price Increases for Valeant Drugs, on the Company’s Revenues .......... 72 C. Valeant Failed to Report Philidor as a VIE .......................................................... 74 VIII. DEFENDANTS MISLED INVESTORS REGARDING VALEANT’S INTERNAL CONTROLS, LEGAL COMPLIANCE, AND THE INTEGRITY OF ITS REPORTED FINANCIAL RESULTS ................................................................ 76 A. Defendants Made False or Misleading Statements Regarding Valeant’s Internal Controls. .................................................................................................. 76 B. Defendants Touted Valeant’s Commitment to Compliance ................................. 77 C. Pearson, Schiller and Rosiello Signed SOX Certifications Attesting to the Truthfulness and Accuracy of Valeant’s Reported Financial Results .................. 78 ii Case 3:18-cv-10246 Document 1 Filed 06/06/18 Page 4 of 172 PageID: 4 D. Defendants’ Statements Were False or Misleading When Made, in Light of the Rampant Misconduct at Valeant ................................................................. 80 IX. DEFENDANTS FALSELY REASSURED INVESTORS OF THE SOUNDNESS OF VALEANT’S BUSINESS PRACTICES AND FINANCIAL RESULTS AMIDST QUESTIONS RAISED BY OTHERS ............................................................. 85 A. Defendants Made Numerous Reassurances in Response to Questions or Concerns Raised in 2014, Mostly in Connection with Valeant’s Attempted Acquisition of Allergan......................................................................................... 85 B. Defendants’ Reassurances in 2014 Were False or Misleading When Made, and Kept Investors in the Dark About the Fraud Pervading Valeant ................... 90 C. Defendants Continued to Reassure Investors in Response to Questions or Concerns Raised in 2015, Even After Valeant Was Forced to Disclose Certain Previously Concealed Facts Regarding Philidor ...................................... 93 D. Defendants’ Reassurances in 2015 Were False or Misleading When Made, Notwithstanding Their Partial Disclosure of Previously Concealed Facts Regarding Philidor .............................................................................................. 104 X. THE TRUTH REGARDING DEFENDANTS’ MISSTATEMENTS AND OMISSIONS WAS REVEALED TO INVESTORS THROUGH A SERIES OF PARTIAL DISCLOSURES ............................................................................................ 107 A. Disclosures in September and October 2015 ...................................................... 107 B. Disclosures in November and December 2015 ................................................... 121 C. Disclosures in February and March 2016 ........................................................... 126 D. Disclosures from April to August 2016 .............................................................. 134 XI. RECENT EVENTS CONTINUE TO EVIDENCE MASSIVE FRAUD AT THE COMPANY..................................................................................................................... 139 XII. ADDITIONAL INDICA OF DEFENDANTS’ SCIENTER .......................................... 141 A. Valeant’s Admission of Improper Conduct ........................................................ 142 B. The Management Defendants’ Role in Valeant’s Business Strategy ................. 142 C. The Management Defendants’ Decision to Close Philidor................................. 146 D. Valeant’s Refusal to Pursue Remedies Against Individual Wrongdoers ............ 149 E. Congressional Hearings ...................................................................................... 150 iii Case 3:18-cv-10246 Document 1 Filed 06/06/18 Page 5 of 172 PageID: 5 F. The Stream of Executive Departures in the Wake of the Fallout from the Fraud Further Indicates Defendants’ Scienter .................................................... 152 G. Pearson Actively Misled Ackman, a Significant Valeant Investor ..................... 153 H. Valeant’s Executive Compensation Program ..................................................... 154 I. The Necessity of Inflating Valeant’s Stock Price to Sustain Valeant’s Acquisition-Centric Business Model .................................................................. 157 XIII. LOSS CAUSATION ....................................................................................................... 157 XIV. PLAINTIFF’S RELIANCE ...........................................................................................
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