Pharmaceutical firm Valeant just can’t seem to catch a break. As if a series of PR debacles and legal troubles regarding their drug pricing operations are not enough, the firm’s long-time CEO and chairman, Michael Pearson, is hospitalized with severe pneumonia.
In a statement released Wednesday, January 6th, Valeant Pharmaceuticals International Inc. named ex-CFO Howard Schiller as the interim CEO while Chief Executive Officer Michael Pearson is hospitalized with life-threatening pneumonia.
Of note, Schiller was tapped to become interim CEO, while Bob Ingram was appointed as interim chairman to temporarily replace Pearson in that role. Until today’s announcement, the firm had been run on a temporary basis by a committee of three senior executives.
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Pearson has been on medical leave for a couple of weeks now, and the timing of his return is not clear. The company first announced Pearson’s medical problems on Christmas Day.
Valeant shares are down around 3% in pre-market trading Wednesday morning.
According to a knowledgeable source from the firm that spoke to Bloomberg this week, naming an interim CEO is designed to clarify management structure. Moreover, appointing a replacement for Pearson is meant, at least initially, to be temporary, the source noted.
More on new interim Valeant CEO Howard Schiller
Schiller previously served as Valeant’s CFO for four and a half years beginning in December 2011, and was a key player in developing the firm’s “serial acquirer” business model.
In June 2015, Schiller resigned from the firm, noting he planned to “pursue new opportunities most likely in areas outside of a publicly-traded company.” He remained a member of the BoD at Valeant, and has spoke at a conference call in October when the firm was explaining its relationship with questionable mail-order pharmacy Philidor RX Services.
Schiller was also employed for 24 years at Goldman Sachs, where he eventually managed the firm’s health-care practice before moving up to COO.
After the news regarding Pearson was announced, but before Schiller was appointed new CEO this morning, SIG reinstated coverage on VRX with a neutral rating.
The analysts opined:
VRX recently ruled out considering strategic alternatives near-term but CEO Mike Pearson’s hospitalization underscores the unpredictable course of events. A variety of deals could exploit VRX’s tax structure. A few companies could consider buying VRX outright (e.g., ABT) with considerable accretion but significant controversy.
What Uncertainties Remain?
Management – The largest new uncertainty that has arisen is around company leadership with CEO Mike Pearson hospitalized and on medical leave. VRX is reportedly naming someone to the CEO role imminently, after initially establishing an Office of the CEO composed of three senior executives.
VRX’s management team and board have demonstrated their focus on shareholder value and ability to move quickly when opportunities arise. We would expect this to continue to be the case regardless of who is CEO. In the near-term, however, it is difficult to determine whether Mike Pearson’s absence could catalyze an opportunity or whether one could be missed in the short-term.
At the investor day, Mike Pearson dismissed consideration of strategic alternatives in the near-term and emphasized management’s focus on delivering an earnings recovery in 2016 that would put the company on the path for sustainable organic growth and renewed deal-making in 2017. Even so, we assumed he was still open to alternatives but perhaps not expecting any to materialize in the near-term that would be superior to his view of standalone value. We can’t entirely dismiss the possibility, however, that the company might consider alternatives in his absence that he might have otherwise resisted.
Three additional research firms are out with reports on Howard Schiller.
While we believe that Mr. Schiller is certainly a capable executive, Mr. Pearson’s prolonged absence at this point is incrementally negative. Valeant is attempting to recover from serious allegations regarding its business practices, and inour view, the company needs solid execution for at least a couple of quarters to rebuild investor confidence. Valeant is in an all-hands-on-deck situation, and Mr. Pearson is indeed a hands-on CEO; his prolonged absence will makeValeant’s recovery more difficult, in our view. Moreover, we believe that almost all VRX investors recognize that Mr.Pearson has been the chief architect of Valeant’s strategy since he became CEO in 2008, and they attribute much of thecompany’s success since then to him personally. Therefore, Valeant’s current issues aside, the prospect of not havingMr. Pearson at the helm will probably make it more difficult to rebuild investor confidence.
Given this unfortunate situation, we think this is the best choice for the company for an interim CEO. Howard did a great job as CFO during his 3 ½ years and has been an active member of the Board since leaving the company last summer. From our many discussions with him, it was clear that he learned a great deal about running the operations from Mike. He was there when Valeant was going through its significant growth period through the many acquisitions and understands the business very well.
And he stepped back in this past summer to help deal with the many issues facing the company. We wouldn’t expect there to be any issues with the base business operations. The good news is that this is the year of operations, not M&A. The longer term concern remains. Mike Pearson has built a company with a different business model, relying more on M&A than any other spec pharma company we have ever seen, so everything does change if Mike is not able to come back to the company this year. But at this point there is no reason to believe that that would be the case.
While we believe that Mr. Schiller is clearly not the long-term solution as he had already signaled a desire to move on, it may also signal that the board is confident that Mike Pearson will return as CEO. Our opinion is that if Mr. Pearson is capable of returning, he certainly will. The WSJ stated that his condition is not improving; severe pneumonia can be life-threatening. While it would be tragic to see Mr. Pearson not return as CEO, there is little information to confirm that this would indeed be the case.