Two top executives at Salix Pharmaceuticals who left after accounting problems at the company will walk away with a combined $46 million, after the company’s sale to Valeant Pharmaceuticals International Inc.
The financial issues prompted a Securities and Exchange Commission investigation after Salix said it recorded sales in the wrong period, counted rebates as business expenses, failed to account for millions of dollars in potential product returns, and let months’ worth of unsold product build up with wholesalers.
The company eventually restated seven quarters of results and said it would mostly stop selling two key products until inventories came down. The SEC hasn’t announced any results of its inquiry, and none of the executives has been accused of wrongdoing.
Chief Financial Officer Adam Derbyshire resigned Nov. 5, the day before the company said it was launching an internal audit. Derbyshire, who is 49 according to public records, will get $10.2 million in stock and $3.1 million in options that he was awarded before the accounting problems were announced, according to data compiled by Bloomberg.
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Former Chief Executive Officer Carolyn Logan, 66, will get $32.7 million in stock that she was awarded before the sale to Valeant. She retired in January, and the deal with Valeant was announced in March. Chairman Tom D’Alonzo called her tenure at the company “remarkable” when he announced Logan’s retirement on Jan. 5. “The Board extends Carolyn its deepest gratitude,” D’Alonzo said in a statement.
Logan and Derbyshire signed off on the financial filings that were eventually restated, except for the third quarter of 2014. For that period, Derbyshire’s approval was replaced by acting CFO Timothy Creech. Salix’s outside auditors Ernst & Young, now known as EY, also signed off on the 2013 annual report.
Derbyshire didn’t return a call for comment, and Logan declined to comment when reached by phone. Stephen Cohen, an outside spokesman for Raleigh-based Salix, declined to comment.
Ernst & Young stood by the company’s 2013 financial statement, the company said when it disclosed the audit committee review in November. EY spokeswoman Amy Call Well declined to comment on the matter.
Salix’s problems didn’t stop Valeant from striking an $11.1 billion deal to buy the drugmaker, which triggered the executive payouts. The offer price is 29 percent higher than the price of Salix’s shares the day before Bloomberg News reported Valeant was considering a bid.
“It’s not just about the accounting scandal, it’s about the value they’ve created in Salix,” said Shibani Malhotra, an analyst with Sterne Agee & Leach Inc. From the beginning of 2008 to now, the stock rose from about $8 to more than $170. “Things didn’t end well, but it doesn’t take away what they did do,” Malhotra said.
The sale to Valeant came after a bidding war with Endo International Plc, which made its own proposal but withdrew it once Valeant upped its offer to $173 per share in cash. Salix’s biggest products are for gastrointestinal disorders, including Xifaxan for traveler’s diarrhea and Uceris for ulcerative colitis.
Salix’s sale has been in the works since last year, when Allergan and Actavis Plc both looked at the drugmaker. Allergan backed away from a deal in part because due diligence revealed issues with inventory accounting, one person with knowledge of the matter said.