Drugmaker Valeant Pharmaceuticals International Inc (VRX.TO)(VRX.N) said on Monday its chief executive officer is leaving and billionaire investor William Ackman would join the board as it tries to clean up accounting problems and save its business.
The company, whose operations include prescription drugs, consumer products, and Bausch & Lomb eye care, has lost nearly 90 percent of its value as it came under public scrutiny for its pricing and distribution practices, including investigations by Congress and government agencies.
On Monday, shares rose as much as 17 percent in New York trading.
Just three weeks after CEO Michael Pearson returned from a two-month medical leave, the company said he will leave. Also, Ackman of Pershing Square Capital Management will join the board, the second seat given to the activist investment firm in as many weeks. The firm held a 6.3 percent stake as of March 8.
In addition, a board committee said its five-month investigation into Valeant’s dealings with pharmacy Philidor Rx Services found broad accounting problems dating back to December 2014.
The committee traced the issues in part to the former chief financial officer, Howard Schiller, who had been interim CEO while Pearson was on leave, and is still on the board.
Valeant pledged on Monday to file its annual report on or before April 29 after missing a deadline last week, which opened the door to a default on part of its $30 billion debt load.
Last week, the company’s stock, hovering around $60, lost one-half of its value as investors wondered if it could manage the debt, built up from a stream of acquisitions.
BTIG analyst Timothy Chiang said the moves announced on Monday looked to be the start of a clean-up process that will take time, but the sooner the company can submit its 10K filing, the better. “There’s not much visibility,” Chiang said.
ACCOUNTING “CAREFUL AND REASONED”
Valeant’s prescription drug sales began to unravel last year as its history of large price increases drew sharp criticism and the attention of lawmakers as well as New York and Massachusetts attorneys general, which opened investigations.
The company’s profitable dermatology franchise faltered as it stopped distribution through pharmacy Philidor due to investor and media scrutiny.
In January, while Pearson was still on leave, the company said it would need to restate earnings from 2014 and 2015 due to revenue recognition issues.
Valeant said on Monday it has started a search for a successor to Pearson, who joined the company in 2008 and built it on acquisitions and drug price increases. His first big stumble came when its hostile takeover attempt of Allergan Inc, done with Ackman, failed.
After the Philidor problems surfaced, Valeant’s board began an 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.
The company said Schiller had been asked to leave the board and refused to do so, requiring another board member to step down to make room for Ackman.
Schiller said in a statement he had not engaged in improper conduct, adding that accounting decisions were “careful and reasoned.”
Valeant had already begun making changes before Monday. It added a Pershing Square representative in a reshuffling two weeks ago that named three new members to the board.
The company said last week it would not hit its 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.
At the time, shares fell sharply, leading Ackman to lose more than $700 million in one day.
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 forecasting $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 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.