Health and Science

Former Valeant exec Kornwasser mum on links to Philidor

Bull and bear debate on Valeant

As embattled Valeant Pharmaceuticals moves — yet again — to tamp down investor concerns amid a series of official probes about the company's business practices, a former top Valeant executive is refusing to explain his dealings with an outside firm that's central to the controversy.

Instead, recently departed Valeant exec Laizer Kornwasser, after being contacted by CNBC, had a PR person who describes herself as "one of the country's leading crisis management advisers" respond on his behalf.

That spokeswoman said Kornwasser is not interested in speaking publicly about his time at Valeant or its financial relationship with Philidor Rx, a specialty pharmacy.

In the meantime, Valeant has scheduled a conference call for investors Tuesday morning to discuss, among other things, its "transition plan" from Philidor Rx, whose relationship with Valeant was under Kornwasser's purview, according to the company. This is the second such investor call to address controversy over Philidor in recent weeks.

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Valeant last month disclosed that it has received subpoenas from federal prosecutors in Manhattan and Massachusetts asking for information about its drug pricing, distribution network and patient assistance program. The company is also being looked at by a U.S. Senate committee, which has requested documents from the company.

Valeant was the subject of a report by short-selling firm Citron Research, which questioned whether it was a "pharmaceutical Enron." Citron claims Valeant used invoices with Philidor to artificially inflate Valeant's revenue. Valeant, in turn, has said it "categorically" denies Citron's allegations, but has seen its stock plummet from as high as $175.94 per share on Oct. 9, to the mid-$80s as of Monday.

Kornwasser, who is in his mid-40s, left Valeant in July, three months before questions began to be raised about Valeant's connection to Philidor Rx.

Kornwasser's departure came after he served just over 2½ years at Valeant. His hiring had been announced less than 24 hours after the incorporation of Philidor in 2013.

Philidor, which hired a key subordinate of Kornwasser's about two months after Kornwasser left Valeant, this month announced that it would shut down on the heels of Valeant saying it would no longer do business with the company.

Valeant's severing of ties with Philidor came after major pharmacy benefits managers including Express Scripts said they would not do business with Philidor because the company was not in compliance with provider agreements. The benefits managers' decision dramatically decreased Philidor's value to Valeant.

Valeant has played down the importance of Philidor relative to its overall business, saying it represented less than 6 percent of sales. But Valeant had previously purchased a $100 million option to buy Philidor, which it never exercised, and later revealed it had also consolidated Philidor's financial results into its own reports.

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Kornwasser, who holds a master's degree from Harvard Business School, previously was a senior executive at Medco Health, which he left in 2012 after it was acquired by Express Scripts.

Several months later, on Jan. 3, 2013, Valeant announced that it was hiring Kornwasser as executive vice president/company group chairman. Valeant chairman and CEO J. Michael Pearson said in the announcement that Kornwasser's "broad health care experience" in areas that include "understanding the retail and mail channels, will be invaluable to us."

A day before the press release was issued, on Jan. 2, 2013, Philidor Rx was incorporated in Delaware, according to that state's Division of Corporations.

Valeant's annual report in 2014 contains a copy of the letter detailing the conditions of Kornwasser's employment, which was dated the same day that Philidor incorporated. The letter notes that Kornwasser would report directly to Pearson.

The Jan. 2, 2013, letter says that Kornwasser will earn a base salary of $550,000 per year, and also says that Valeant will recommend to the talent and compensation committee of the company board of directors that he received equity awards valued at about $4.8 million.

Those equity awards included 85,000 stock options that each vest at 25 percent "one each of the 4 anniversaries following the date of grant," as well as 45,000 performance stock united which vest between zero and 300 percent based on meeting certain performance criteria "as measured approximately three years from the grant date.

The letter says that the grant date for the awards is the later of the dates of when Kornwasser started work at Valeant or the date that the talent committee approved the awards.

While at Valeant, Kornwasser oversaw, among other people, a manager named Gary Tanner. A spokeswoman for Valeant said Tanner "joined Valeant in December 2012," or a month or so before Philidor was incorporated and Kornwasser was hired by Valeant.

"Valeant's liaison with Philidor was ... Gary Tanner," the spokeswoman told CNBC in an email. "Gary interacted day-to-day with the Valeant dermatology team."

"Gary reported to Laizer Kornwasser, until Laizer ceased to be an employee of Valeant," she said.

Kornwasser did not leave to take an executive position at another drug company. Instead, Kornwasser joined two boards of directors.

One board was that of Everyday Health, a digital health and wellness company. The other was for Yeshiva University, the upper Manhattan college where Kornwasser obtained his bachelor's degree

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Kornwasser also became an adjunct professor at Yeshiva, where he teaches a course entitled "Managing a Growing Business."

On Friday afternoon, CNBC went to Kornwasser's home on a leafy street in northern New Jersey, not far from the George Washington Bridge. A woman who answered the door said Kornwasser was not home, but took a reporter's phone number and was asked to tell Kornwasser the reporters had questions about his time at Valeant.

Less than two hours later, one of the reporters was called by Rhonda Barnat, an executive at the public relations firm of Abernathy MacGregor. Barnat is "co-head of the firm's crisis management practice," according to her online biography.

Barnat later told CNBC that Kornwasser was not interested in speaking to a reporter about his tenure at Valeant and his relationship with Philidor.