December 28, 2015
By Alex Keown, BioSpace.com Breaking News Staff
LAVAL, Quebec – Valeant Pharmaceutical ’s embattled chief executive officer Michael Pearson has been forced to the sidelines temporarily due to a bout of pneumonia, the company announced this morning.
Over the Christmas holiday, Pearson was hospitalized for a severe case of lung infection, Valeant said in a statement. While he recovers from the illness, Valeant will be helmed by a newly formed interim committee dubbed the Office of the Chief Executive Officer, which includes Robert Chai-Onn, an executive vice president and general counsel; Ari Kellen, an executive vice president and company group chairman and Robert Rosiello, Valeant’s chief financial officer. Additionally, Valeant’s board of directors created a second committee to oversee the interim directorial committee, which includes Robert Ingram, lead independent director; G. Mason Morfit, president, ValueAct Capital and Howard Schiller, the former CFO for Valeant.
Pearson’s illness came at a tough time for Valeant as it seeks to calm investors after an accounting scandal and regain some market share after a difficult few months that saw the stock lose more than half of its value. Valeant’s stock closed Christmas Eve at $114.14 after having been as low as $70.32 per share only a few weeks before. With Pearson out for the foreseeable future, investors may react negatively and the stock could lose some of the ground it has regained since November, an analyst told Bloomberg on Sunday.
“Investors hate uncertainty. When you have uncertainty about a company, stock prices could suffer,” Dimitry Khmelnitsky, an analyst with Veritas Investment Research Corp. in Toronto who covers Valeant told Bloomberg.
Khmelnitsky and analysts at Seeking Alpha rate Valeant’s stock as a sell, in large part due to Valeant’s scandal associated with Philidor RX Services, high drug prices and practice of growth through acquisition.
Earlier this month during a Valeant shareholder’s meeting, Pearson pledged to be more transparent when it comes to data about company business and performance of its approved drugs. At the same time, Bloomberg described him as being more defiant when it comes to company strategy, which has largely been based on mergers and acquisitions, as well as the use of specialty pharmacy companies. Another move that helped endear Pearson’s leadership to shareholders were some recent moves, including a deal with Walgreens to sell its branded products at a 50 percent discount. The company said it will sell some of its name brand products used for “dermatology, ophthalmology, gastrointestinal and neurology/other therapeutic areas” at generic prices, if there are generics of that drug. Additionally, Valeant will reduce all of its dermatological and ophthalmological products by 10 percent in Walgreens.
This has been a tough year for Pearson, who has watched the company’s market share decline, despite leading it through several acquisitions. Pearson came to Valeant in 2008 and under his leadership expanded the company through aggressive mergers and acquisitions, taking over companies like Salix Pharmaceuticals and Bausch & Lomb. Under his leadership, revenue has grown seven-fold and stock prices had soared, until earlier this year when the company’s troubles came to light. 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 for the CEO.
Despite that growth though, Valeant has been under attack for the pricing of some of its drugs, as well as its relationship with the specialty pharmacy company Philidor Rx Services that has drawn allegations of falsely inflating revenues, earning the company the moniker of the “pharmaceutical Enron,” by short-selling group Citron Inc. 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.
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.
