Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Bill Ackman has always had plenty to say about Valeant. Now he's about to have more of a say.

The embattled pharmaceutical company announced Wednesday it is adding three new independent directors. One of them is Wall Street M&A lawyer -- and Vice Chairman of Ackman's Pershing Square -- Stephen Fraidin. The other two are former University of North Carolina President Thomas Ross and ex-pharma executive Fred Eshelman. Former Meda CEO Anders Lonner is stepping down.

If ever a company needed a bit of extra governance, it's Valeant. But this looks more like a tender rocking of the board than a real shakeup.  

Board Bump
Valeant shares got a mild boost on the news it was appointing 3 new board members.
Source: Bloomberg
Intraday times are displayed in ET.

Valeant shares jumped about 6 percent on the news. But that gain is drowned out, in the manner of a black hole swallowing light, by the fact that Valeant has lost close to $70 billion in market cap inside of a year.

On Tuesday, while early reports of the company's board plans were circling, Bill Ackman was talking about the company at the Harbor Investment Conference. The most interesting thing to come out of that -- aside from an estimable Herbalife zinger -- was Ackman's suggestion that Valeant might sell a chunk of its Bausch & Lomb eye care business in order to pay down debt.

It's unsurprising Ackman has his eye on Valeant's debt; the rest of the market sure does. Valeant had more than $30 billion in debt as of its last SEC filing. It has said it plans to spend most of the cash it generates this year on reducing that debt -- but that cash may not be enough to get Valeant to its year-end target of a net-debt-to-Ebitda ratio of about 4.0.

But Ackman's longer term interest in such a deal may be strategic. The faster the company reduces its debt load, the sooner it can return to doing acquisitions.

Bausch & Lomb, acquired for $8.7 billion in 2013, is one of Valeant's best businesses. According to an investor day the company held in November, Bausch & Lomb was forecast to provide 22 percent of Valeant's revenue in 2016. It's also key to the company's stated goal of growing organically with its current roster of products, rather than by bolting on other companies as it has in the past.

Oversight
Valeant has lost nearly $70 billion in market value inside of a year.
Source: Bloomberg

Ackman's attitude -- along with the placement of a Pershing exec who's an M&A lawyer on the board -- suggests he may prefer to get back to that bolting-on model. 

Wells Fargo analyst David Maris, as he often is with Valeant, is unimpressed. He wrote in a note that ValueAct capital, an institutional investor and big holder of Valeant stock, already has two members on the board, and that adding another person from a major investor seems redundant. 

The other two new board members, Eshelman and Ross, are close to current chairman Robert Ingram, noted Roddy Boyd of the Southern Investigative Reporting Foundation in a tweet on Wednesday. Eshelman and Ingram served together on the board of Pharmaceutical Product Development, a company Eshelman founded and led for more than 20 years. Both also served on a board with Ross at UNC.

That doesn't mean they won't do an excellent job. Eshelman has pharma experience to spare, and Ross has dealt with crises at UNC. But the moves don't scream "independent" or "massive rethinking of the company's culture." 

The list of things that have gone wrong under this board's oversight in just the past couple of weeks is exceptional. In a three-day stretch last week, Valeant announced a withdrawal of its earnings guidance, an SEC investigation it may have brought on itself by trying to push back against a short-seller, and a major executive departure. The list of missed red flags during Valeant's controversial rise and precipitous fall is even longer. Fundamental concerns about the company's accounting, specialty pharmacy relationships, and business model remain. 

With the exception of the two directors from ValueAct and one other, Valeant's independent board members had been around since 2011 or earlier. One of the ValueAct directors initially served from 2007 to 2014, before returning last year. Any extra eyes are good for Valeant, but this might not be the right set of them. 

Correction: An earlier version of this story incorrectly said Valeant had lost about $90 billion in market cap inside of a year. It has lost roughly $70 billion.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net