Goldman, Sachs & Co. Forced Valeant CEO to Sell $1.3 Million Shares of Company

November 9, 2015
By Alex Keown, BioSpace.com Breaking News Staff

LAVAL, Quebec -- Banking giant Goldman, Sachs & Co. called in $100 million worth of loans backed by company stock from Valeant Pharmaceuticals International Inc. ’ Chief Executive Officer J. Michael Pearson last week, the Wall Street Journal reported Sunday.

As Valeant stock has plummeted in value, Goldman Sachs told Pearson at the end of October he needed to repay the loans, or the shares would be sold, the Journal said. In 2014, Pearson pledged about two million shares to Goldman Sachs as collateral for the loan. At the time the shares were pledged, the shares had a value of $227 per share, Business Insider reported.

Pearson used the $100 million for various purposes, including “financing charitable contributions, including to Duke University, and helping to fund a community swimming pool, purchasing Valeant shares, and meeting certain tax obligations related to the vesting and payment of Valeant compensatory equity awards,” Valeant said in a statement released Nov. 6.

Valeant said the shares Goldman Sachs sold represented 20.19 percent of the shares Pearson owned. As of May 19, Pearson owned approximately 2.95 percent of Valeant, government filings show. In January 2015, Pearson agreed to not receive a base salary and instead be compensated exclusively through cash and stock incentive awards tied to performance.

"Since joining Valeant, I have not sold any shares provided to me as compensation, and it was not my desire that shares be sold now," Pearson said. "I have complete confidence in Valeant's ability to move forward and continue meeting our commitments to patients, doctors and shareholders."

Since a high of $259.98 per share price on Aug. 4, Valeant’s has plummeted to a year-low of $81.77 per share. The stock is currently trading at $78.81 per share.

In addition to Goldman’s margin call, other investment firms have been divesting themselves of Valeant stock, including firm Weitz Investment Management and Gluskin, Shelf & Associates. On its website Weitz said it divested itself of Valeant stock due to the “company’s pharmacy relationships, pricing policies and business practices.”

While Valeant has faced scrutiny over its drug pricing and its relationship with the specialty pharmacy Philidor RX Services, Pearson has also been under pressure by some investors, particularly Bill Ackman, the company’s third-largest shareholder, who has been critical of Pearson and the company’s crisis communications strategy, before ultimately expressing his support the CEO.

“You are one of the most shareholder-oriented CEOs I know. You have assured me that you and the rest of the board are considering any and all alternatives that would benefit shareholders and other stakeholders. That is very comforting to us,” Ackman said in an email to Pearson.

However, the supportive tone of that email is different from other communications between Ackman and Valent leadership over the past few weeks. Citing the Wall Street Journal, a Business Insider report said Ackman, who has lost approximately $2 billion as Valeant shares have lost more than 75 percent of their value, sent an email to Pearson on Oct. 27 saying the CEO’s reputation was “at grave risk” and that Valeant has become “toxic.” He also indicated that Pearson may have to be replaced as CEO of Valeant, Business Insider said.

Pearson came to Valeant in 2008 and under his leadership expanded the company through aggressive mergers and acquisitions, taking over companies like Salix Pharmaceuticals, Ltd. and Bausch & Lomb. Under his leadership, revenue has grown seven-fold and stock prices had soared, until earlier this year.

In October Citron Research, a short-selling firm led by Andrew Left, raised concerns over Valeant’s relationship with Philidor and the company’s accounting practices. In one of its reports, Citron dubbed Valeant the “pharmaceutical Enron,” comparing the company to the energy giant that collapsed following reports of accounting scandals in 2001. In an October release, Citron Research decried Valeant for its “unsavory business practices of massive price raises on pharmaceuticals acquired in a rapid succession of acquisitions, while slashing research and development.” Additionally, the Citron report criticized Valeant’s relationship with Pennsylvania-based Philidor Rx Services, a specialty pharmacy acquired by Valeant last year. Philidor engages in the “prescriptions made easy” practice. Under this practice, a pharmaceutical company encourages physicians to submit prescriptions for the high-priced medication to a mail-order pharmaceutical company associated with the parent pharmaceutical company. That pharmacy sends the medication to the patient and then directly deals with the insurance company. Some who are critical of the “prescriptions made easy” practice prevents patients and insurance companies from switching to cheaper alternative prescriptions and serves to pad the bottom lines of companies such as Valeant.

At the same time Citron raised its concerns about Valeant’s relationship with Philidor, Valeant is also facing scrutiny from U.S. lawmakers and two U.S. attorney’s offices over pricing of drugs acquired through acquisitions. Valeant is under fire for a price increase of two recently-acquired cardiac drugs, Nitropress and Isuprel, after the company acquired Salix Pharmaceuticals, Ltd. (SLXP). Valeant then increased the prices for those drugs by 212 percent and 525 percent, respectively. Valeant acquired the two drugs in April.