November 4, 2010 / 11:57 AM / in 7 years

UPDATE 3-Valeant settles lawsuits, posts quarterly loss

* Settles disputes with SAC Capital Advisors, Gradient

* Q3 loss $1.27/shr vs EPS $0.25 last year

* Sets special div of $1/shr; announces $1.5 bln buyback (Adds details; in U.S. dollars unless noted)

By Solarina Ho and Tom Hals

TORONTO/WILMINGTON, Nov 4 (Reuters) - Valeant Pharmaceuticals International Inc (VRX.TO) (VRX.N) said on Thursday it had settled two legal disputes stemming from “regrettable” lawsuits launched by predecessor company Biovail Corp, which claimed it had suffered from a stock manipulation scheme.

Mississauga, Ontario-based Valeant, which also posted a quarterly loss on Thursday, agreed to pay SAC Capital Advisors, a leading hedge fund, $10 million plus some legal costs. It also settled a legal dispute with Gradient Analytics Inc, a firm that provides research to hedge funds.

Biovail, which bought U.S.-based Valeant in June for about $3.3 billion, filed a multibillion dollar lawsuit in 2006 alleging SAC, Gradient, and other hedge funds conspired to drag down the company’s share price to benefit their own stock positions.

In its legal case against Gradient, Biovail quoted a former Gradient employee referring to the firm’s reports as “hatchet” jobs. The lawsuits triggered a Securities and Exchange Commission inquiry.

At the time, Biovail -- still under the helm of founder Eugene Melnyk -- was under investigation by regulators in the United States and Canada and was targeted in U.S. federal lawsuits.

In 2007, the company paid $138 million to settle a lawsuit filed by disgruntled shareholders. Melnyk, embroiled in regulatory problems dating back to 2001, retired in June of that year.

After the 2006 lawsuits against Gradient and SAC were dismissed, the two shot back earlier this year with their own lawsuits seeking damages for legal complaints brought against them with “malicious intent”.

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Breakingviews column on the lawsuit: [ID:nN04251199]

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Melnyk, who has been a vocal opponent of the Biovail-Valeant merger, was recently found by the Ontario Securities Commission to have not broken any laws relating to an earnings warning in 2003, but was told his conduct was “contrary to the public interest”, a finding he is currently appealing.

The Valeant-Biovail merger brought in a new management team, which moved to distance the company from the Biovail disputes.

“The initiation of litigation against SAC and others in 2006 by Biovail’s management at the time was regrettable. We would like to put this incident behind us,” Valeant Chief Executive Michael Pearson said in a statement.

THIRD-QUARTER LOSS

Valeant said it was “well ahead of schedule” in its post-merger integration.

The company outlined its progress during a conference call with analysts. Six major projects in its pipeline have been shut down, with others under consideration. Roughly half of the 1,050 non-manufacturing personnel have been terminated. Non-manufacturing sites have also been consolidated, with most closed and a few downsized.

Valeant, which gained from Canada’s tax friendly corporate structure following its deal with Biovail, had previously said it was looking at $300 million in savings by the end of 2012.

The results it reported on Thursday reflect the full third-quarter figures of legacy Biovail and only three days of results for legacy Valeant.

The company posted a net loss of $207.9 million, or $1.27 a share, in the quarter, compared with a profit of $40.4 million, or 25 cents a share, in the year-before quarter.

Operating expenses rose 23 percent, while selling, general and administrative expenses rose 34 percent.

The reported revenue, which included no contribution from legacy Valeant, slipped 2 percent to $208.3 million. Legacy Valeant’s partial third-quarter revenue was $259.2 million.

The combined company’s revenue is expected to be about $500 million in the fourth quarter.

The company set a special dividend of $1 a share, but said it did not intend to pay future dividends. Biovail traditionally paid a substantial dividend compared with others in the industry.

The company also announced $1.5 billion share buyback.

Valeant shares were down 4.1 percent at C$27.17 on the Toronto Stock Exchange and were off about 4.2 percent at $27.07 in New York.

$1=$1.00 Canadian Additional reporting by Isheeta Sanghi in Bangalore; editing by Peter Galloway

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