Ackman, Valeant Board Support CEO Pearson as Shares Plungeby
Stock falls 14 percent to lowest price since May 2013
`We share the board’s confidence in you and your leadership'
As Valeant Pharmaceuticals International Inc.’s shares plunged to their lowest level in more than two years, the drugmaker’s board and most prominent investor offered fresh support around Chief Executive Officer Mike Pearson.
The company’s third-biggest shareholder, billionaire hedge fund investor Bill Ackman, said that while he disagreed with some of Pearson’s decisions, he felt he was the right CEO for the drugmaker. The board issued a separate statement saying it stood behind Pearson.
Those comments Thursday afternoon didn’t save the company’s plummeting shares, which fell 14 percent to leave the stock down 70 percent from its peak in August.
Valeant has been under pressure over how it prices its drugs and its relationship with Philidor Rx Services, a mail-order pharmacy that it cut ties with on Oct. 30. Members of Congress said Wednesday that they want to investigate Valeant’s pricing practices.
Ackman was quoted in an earlier report by the Wall Street Journal saying that his confidence in the company’s leadership had briefly wavered. He made clear Thursday that he was sticking with the CEO.
“We share the board’s confidence in you and your leadership,” Ackman, who runs Pershing Square Capital Management, said in the letter Thursday. “While I have strong views on Valeant’s communication strategy and would have taken a different approach, you and the board should not interpret this as a negative reflection on my view of you as the CEO of the company.”
Valeant spokeswoman Laurie Little said that Pearson has the board’s “full confidence.”
“Mike remains focused on running the business and has been meeting with physicians, partners, and other stakeholders,” Little said in an e-mail. “Despite recent market volatility that has impacted our stock price, Valeant’s core business remains strong and is well positioned for growth.”
The shares dropped below $80 for the first time in more than two years, and closed at $78.77 in New York. The decline was the sixth trading day in six weeks with a drop of at least 10 percent. The company now has a market value of about $27 billion, compared with more than $80 billion in August.
Valeant’s most actively traded bond, $3.25 billion of 6.125 percent notes that mature in April of 2025, plunged 2.25 cents to 82 cents on the dollar Thursday to yield 9 percent. The bonds, issued in March of this year, traded above par until the end of September.
In an interview published late Wednesday, Ackman recounted to the Journal how he has pressed the drugmaker’s executives for answers and has told the company’s lead director that Pearson might need to leave.
Ackman told the newspaper he pushed Valeant to hold a conference call to “come clean” and disclose the full extent of executives’ knowledge about Philidor, and that he was disappointed the company didn’t comply.
“If Mike hides in the bunker on this, he can’t be CEO,” Ackman said he told Valeant’s lead director, Bob Ingram. Ingram replied that Pearson couldn’t discuss the matter because the drugmaker’s investigation is in progress, the newspaper said.
Ackman was later satisfied when Valeant said it would end its relationship with Philidor. “We think there are perhaps some shareholders who lost confidence in Mike Pearson,” he said on a conference call on Oct. 30. “But let me be clear, we have not.”
“Valeant’s current issues aside, the prospect of not having Mr. Pearson at the helm is probably further eroding investor confidence, which probably explains today’s weakness,” Alex Arfaei, an analyst at BMO Capital Markets, said Thursday in a note. He said Pearson should stay at the helm of the drugmaker.
Lawmakers in both houses of Congress have asked Valeant for documents related to the heart drugs Nitropress and Isuprel, whose prices shot up by 212 percent and 525 percent the day the drugmaker acquired the rights to sell them. On Thursday, Democrats on the Ways and Means Committee called on the panel’s Republicans to call a hearing on drug pricing.
In addition, Democrats on the House Energy and Commerce Committee are pushing for a vote on a subpoena to compel Valeant to hand over documents on price increases. The U.S. Senate’s Special Committee on Aging, meanwhile, will investigate drug pricing practices by Valeant and three others.
“We look forward to cooperating with the committee on its inquiry,” Valeant said in an e-mailed statement Wednesday on the Senate investigation. “The list price of any individual drug typically does not reflect the actual amount paid by a health care provider or insurance company, and Valeant devotes a significant portion of its revenue to patient assistance programs that are designed to make important medicines more affordable to the patients who need them.”
Democratic presidential candidates Hillary Clinton and Bernie Sanders have both said they’ll seek reforms in the drug industry. Republican presidential candidate Marco Rubio also has said “pure profiteering” in the pharmaceutical industry is something that needs to be confronted.
Valeant has received subpoenas from the U.S. Attorney’s offices in Massachusetts and Manhattan seeking information on drug pricing decisions, the company said last month. It also has been under scrutiny for its relationship with Philidor. Former Philidor employees alleged that the pharmacy altered some doctors’ orders to specify that they wanted brand-name drugs instead of generics, a way to get larger reimbursements for Valeant from health insurers. Philidor said that it only filled prescriptions with medications that doctors and patients requested.
Weeks before Valeant said it would cut ties with Philidor, the drugmaker was planning to expand its use of the mail-order pharmacy, Bloomberg News reported Wednesday, citing three people familiar with the matter. Philidor was on the brink of becoming a larger part of Valeant’s operations as the drugmaker planned to widen the pharmacy’s role beyond dermatology to other lines of medications, the people said.