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.

If you want to humble yourself over your past misdeeds as a company, which included excessively pricing drugs, then maybe don't start by excessively paying your new CEO in a way that already blew up in your face once. 

In front of a Senate committee on Wednesday, Valeant's outgoing CEO Mike Pearson and board member Bill Ackman said they were very, very sorry about raising drug prices so, so much. Then, in the middle of that hearing, in which Valeant was being excoriated for alleged greed and excess, the company disclosed in a filing that it will pay incoming CEO Joe Papa about $67.4 million this year, making him one of the highest paid CEOs in health care.

Hazard Pay
Joe Papa will be one of the highest paid executives in health care when he takes over at Valeant. 2016 pay, unless noted.
Filings/Bloomberg
*2015 pay

Susan Collins, the Maine Senator who chaired the committee, was reportedly caught on a hot mic after the hearing calling the pay package "outrageous."

If she thinks it's outrageous now, then imagine what she'll say if all goes well for Valeant. If the company's stock price gets back to its past highs of $270 from its current perch around $34, then Papa's pay will balloon massively as shares vest. In that (exceedingly unlikely) case, he will apparently make more than $500 million.

Such pay might be what it takes to get an apparently well-regarded CEO with substantial pharmaceutical experience to take on this kind of project. But Valeant is its own cautionary tale about extremities of performance pay.   

The company was once praised for the allegedly shareholder-friendly way it paid Pearson. His package was heavily weighted toward restricted share grants and rewarding long-term share performance. It was supposed to make sure Pearson managed for shareholders, and turned him into a very rich man when the stock was at its highs -- on paper, anyway. Bloomberg estimates Pearson's net worth is down $614.4 million so far this year. 

Pearson was certainly incentivized to boost Valeant's share price. But this arguably led him to an unsustainable, and now-disavowed, strategy that focused on rapid M&A, R&D cuts, and price increases as a way of juicing the company's shares. It ended up dooming him, and the aftermath of the strategy's ultimate failure will make it exceedingly difficult for Papa to mount a comeback.

After the Fall
Valeant has a long climb back to share price heights that would make Joe Papa a lot of money.
Source: Bloomberg

Pearson leaves Papa with a hodgepodge of largely and aging unrelated assets, with limited ability to raise prices. He has a $30 billion debt pile to pay down before he can make any more acquisitions and has to deal with several ongoing government investigations. 

On top of that, he has to spin a brand-new strategy out of thin air for a company without much of a development pipeline and an aversion to R&D. 

Valeant is trying to put itself on better footing, by finally filing its 10K (expected by Friday), dramatically shaking up its board, and appointing a CEO with industry experience. Shares were up 3 percent Thursday on that hope.

But the hangover from Valeant's misspent years will seriously limit what Papa can do. And his package suggests the company hasn't learned all the lessons it might have from the collapse of its share price and strategy. 

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