Login Register Subscribe
Current Issue

Valeant CEO out, investor Ackman in over drugmaker's accounting issues

Reprints

(Reuters) — Embattled Valeant Pharmaceuticals International Inc. said on Monday its chief executive officer will step down, activist investor William Ackman was appointed to its board and that it had uncovered accounting problems.

The Canadian drugmaker said its financial reports last year had lacked the necessary oversight and laid the blame on its chief financial officer and controller as well as the company's performance-based environment.

Valeant pledged to file its annual report on or before April 29 after having missed a filing deadline last week, which created a potential default on its $30 billion in debt and drove its shares down 50% in one day.

On Monday, the stock jumped nearly 16% to $31.22 in New York trading.

The company said it had started a search for a successor to J. Michael Pearson, who used mergers and acquisitions and drug price increases to drive double-digit profit growth for years, pushing the stock to a peak of $263 last August.

That strategy ran into trouble last fall as two state attorneys general opened investigations into its drug pricing. Also, the company's profitable dermatology franchise faltered as it walked away from distribution through pharmacy Philidor Rx Services due to investor and media scrutiny.

After the Philidor problems surfaced, it began a board investigation, which has identified revenue recognition and other accounting problems, the company said. The probe and the dismissal of its corporate controller led to the delay of the regulatory filing, Valeant said.

"While I regret the controversies that have adversely impacted our business over the past several months, I know that Valeant is a strong and resilient company, and I am committed to doing everything I can to ensure a smooth transition to new leadership," Pearson said in a statement.

Mr. Pearson, a former McKinsey consultant, was out on medical leave for two months due to pneumonia, the company said, and returned to work only a few weeks ago. Howard Schiller, the former chief financial officer who had left last summer and who was still a board member, took over as interim CEO.

On Monday the company said Schiller had been asked to leave the board and refused to do so. Another board member left to make room for Ackman.

The company added an Ackman proxy to the board in a reshuffling two weeks ago that added three new members to the board. Ackman held a 6.3% stake as of March 8.

The company said last week it would not hit 2016 earnings targets and would need to negotiate with lenders because of the delay in filing its annual report with the Securities and Exchange Commission.

Shares fell sharply, causing Ackman more than $700 million in losses in one day of Valeant trading.

John Hempton of Bronte Capital, who has been shorting shares of Valeant, said on Monday he still believes Valeant shares will be worthless.

Hempton said Valeant is currently guiding for $6 billion in earnings before interest, taxes, depreciation and amortization from just over $10 billion in revenue. "If you believe a bunch of non-patent protected drugs can do this in the face of payer revolt against rigged prices, I will sell you some stock and the Brooklyn Bridge," Hempton said.

One Wall Street equity analyst was also negative on the move.

"With the exception of a few pockets of growth like Xifaxan, consumer and contact lens, we continue to view Valeant's collection of assets as weak and eroding, and do not expect a new management team to return the business to growth," Mizuho analyst Irina Koffler wrote in a note.

Xifaxan is a treatment for irritable bowel syndrome.