Questions Swirl About the Future of Valeant CEO Pearson

November 6, 2015
By Alex Keown, BioSpace.com Breaking News Staff

LAVAL, Quebec – As Valeant Pharmaceuticals International Inc. faces continued scrutiny over prescription drug pricing, plummeting stock prices and a relationship with a controversial specialty pharmacy company, billionaire investor Bill Ackman is standing behind Mike Pearson , the company’s embattled chief executive officer.

In an email to Pearson obtained by CNBC, Ackman, the third-largest shareholder in Valeant , expressed his support for Valeant’s leadership, although he criticized the company’s crisis communications strategy over the past few months.

“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 the Wednesday email posted by CNBC.

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.

During his own call with investors in his investment company, Pershing Share Capital Management last week, Ackman said Valeant needs to take a proactive communications strategy to address the Valeant controversies. Still, Ackman told the more than 9,000 people listening to the call, that Valeant is a robust company and that the company’s stock is undervalued and has an “89 percent upside.”

While Ackman may be standing behind Valeant, other investment firms are not so supportive.

Investment firm Weitz Investment Management posted on its website Monday that it has divested itself of all Valeant stock.

“Recent developments about the company’s pharmacy relationships, pricing policies and business practices led us to sell our remaining shares in late October. We no longer own Valeant in our client portfolios or mutual funds,” the company said on its website.

Gluskin, Shelf & Associates also sold off its shares of Valeant earlier this fall, Reuters reported.

Since a high of $259.98 per share price on Aug. 4, Valeant’s has plummeted to a year-low of $73.32 per share. The stock is currently trading at $78.81 per share.

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 RX Services 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.. Valeant then increased the prices for those drugs by 212 percent and 525 percent, respectively. Valeant acquired the two drugs in April.

In addition to the two cardiac drugs, Valeant has also been criticized for quadrupling the price of the 55-year-old drug Cuprimine, used in the treatment of Wilson disease. A New York Times article excoriated Valeant for its practice of increasing the price of drugs following an acquisition. According to a Deutsche Bank report, Valeant increased prices on its brand-name drugs an average of 66 percent, about five times more than its other competitors, the Times said. Valeant, the article says, spends only about 3 percent of sales generated revenue on research and development, “which it views as risky and inefficient compared with buying existing drugs.” That amount was about $246 million in 2014.