April 28, 2016
By Alex Keown, BioSpace.com Breaking News Staff
LAVAL, Quebec – If Joseph Papa is able to drive Valeant Pharmaceuticals ’ stock back to the heights it enjoyed last summer by 2020, he will become a very rich man.
Papa, who was tapped to succeed the ousted Michael Pearson as chief executive officer earlier this week, will receive a base annual salary of $1.5 million. Papa is also expected to be awarded $8 million by Valeant to compensate for money he forfeited when he resigned from Perrigo. Papa resigned from his position at Perrigo on April 24 and was promptly named the new CEO at Valeant on April 25. Valeant said it anticipates Papa will assume his new duties in May.
While that’s nothing to sneeze at, the real money comes in the form of stock options he will receive. According to Valeant documents filed with the U.S. Securities and Exchange Commission, Papa will receive 373,367 restricted share units, as well as 933,416 performance-based restricted stock units (PSU). Papa also has the potential to earn between zero and 1,866,832 PSUs depending on performance, according to the documents. For the shares to become partially and then fully vested, Papa’s contract has share price requirements. If Valeant’s stock hits $150 per share, Papa’s shares will be fully vested. However, if the stocks are driven to $270 per share, then Papa’s shares will be 200 percent vested, according to the filing.
If Papa is capable of restoring investor confidence and can drive the stock back to $270 per share, as it was in August 2015, Papa stands to earn more than $500 million, Forbes reported. Pearson, at the height of his tenure at Valeant, had similar stock options and was worth, on paper at least, more than $1 billion. Forbe’s Antoine Gara points out that these stock incentives Papa received, could cause the Canadian company to resume the aggressive M&A activities that ended up getting the company in trouble. In fact, Pearson, as well as other top executives, including Howard Schiller, Valeant’s former chief financial officer, testified before Congress Wednesday about the company’s M&A practices that included driving up the prices of recently acquired drugs. The Valeant representatives told Congress the company “went too far in its aggressiveness,” Forbes reported.
One of the first things he may have to face is the company’s failure to file its 10-K annual report earlier this year. The company has a self-imposed deadline of April 29 to file. MarketWatch noted Monday that if Valeant fails to file the 10-K form by April 29, there is another filing deadline of June 11 from bondholders who issued a notice of default. There is also another 10-K deadline on June 21 from bondholders who submitted a separate default notice on Friday, MarketWatch said. With the leadership transition, MarketWatch speculated there may be a delay in filing those forms, which could spell bad news for Valeant.
Earlier this month Valeant brought in investment banks to review its financial options, which could include divesting itself of some of its bigger assets. What those assets are have not been disclosed, but Ackman and other executives said it was unlikely Valeant would sell off any of its core assets.
Papa replaces Michael Pearson, who oversaw a period of rapid growth at Valeant, primarily based on an aggressive M&A mindset. However, the company hit some major stumbling blocks with the Philidor scandal and a Congressional inquiry into the company’s pricing policies. Since August, the stock has dropped nearly 90 percent. Pearson’s departure from Valeant was announced only weeks after he returned from medical leave that sidetracked him for about two months. In March, Valeant’s board of directors initiated a search for a new CEO to replace the recently returned Pearson at the helm of the company. Robert Ingram, chairman of Valeant’s board of directors, said he believes the company “will be able to rebuild its reputation and thrive under new leadership.”
