William "Bill" Ackman, founder and chief executive officer of Pershing Square Capital Management LP, speaks during the 20th Annual Sohn Investment Conference in New York, U.S., on May 4.Andrew Harrer/Bloomberg
Valeant Pharmaceuticals International Inc.'s search for a new chief executive officer could be done sooner rather than later, said board member and billionaire investor Bill Ackman, whose Pershing Square Capital Management LP is one of the drugmaker's biggest holders.
"We're cautiously optimistic it's a matter of weeks and not months in terms of identifying new management for the company," Ackman said on a Pershing Square investor conference call Wednesday. "There is not a list for 100 candidates for the job, there's probably a handful of top candidates. Because of all the M& activity in pharma, there are lots of candidates who are available and there are also people in other businesses that find this opportunity extremely attractive."
Valeant's shares lost more than 90 per cent of their value from their peak in August after the company was questioned over its drug prices, criticized by presidential candidates, investigated by Congress, and cut ties with a mail order pharmacy called Philidor Rx Services LLC. The company said last month that Chief Executive Officer Mike Pearson will leave when a successor is found, after the drugmaker reported weak fourth-quarter results and announced earnings restatements.
"The best time to be CEO is when expectations are extremely low and the starting valuation is extremely low and Valeant certainly offers that," Ackman said on the call. "We can restore value here very, very quickly."
A spokeswoman for Valeant didn't immediately respond to a request for comment.
Board Committee
Valeant shares rose 10 per cent on Tuesday after the company said a special ad hoc board committee, charged with investigating Valeant's ties to Philidor and the actions of its executives, had found no wrongdoing. Valeant was accused by a short seller of using Philidor to inflate sales of its drugs, and the earnings restatements related to how it should have recorded revenue through the pharmacy.
The stock gained 15 per cent to $33.11 at 12:55 p.m. in New York. Earlier, the shares climbed as much as 21 per cent, the biggest jump since September 2005, according to data compiled by Bloomberg. The ad hoc committee's dissolution without a major new finding is a significant step, Ackman said.
Governance Concerns
Investors lost confidence in Valeant's financial statements, management, and had concerns over governance, Ackman said. Getting the delayed 10K annual report filed is Valeant's "highest priority."
"We think each of these issues, as they are addressed, will build confidence and ultimately cause the stock price to reflect the value of its underlying assets or the intrinsic value of the business, as opposed to being un-investible as it's been called," Ackman said, noting many investors cannot own securities when regulatory filings are delayed.
Valeant's woes have triggered credit rating reviews and speculation about its debt and whether the company will need to sell assets.
"Valeant has a supportable level of leverage and to the extent they want to reduce it more quickly," Ackman said in response to a question. "There are many well capitalized buyers for pretty much every asset that any pharma company owns. Valeant had talked about selling some non-core assets, which they could do, but we do think the company has plenty of cash flow to cover its debt service obligations."
Pershing's Investment
Pershing Square owns about 9 per cent of Valeant – including 6.3 per cent of its common shares, plus options. As the stock fell, it dragged down Pershing Square's results with it: the firm lost 25.6 per cent in the first quarter this year, extending losses primarily due to its stake in the drug company. The hedge fund posted its worst annual performance in 2015, with a net loss of 20.5 per cent.
Mistakes around the Valeant investment have "required some soul searching on our part," Ackman said. "We do believe there is significant intrinsic value that supports our underlying investment in Valeant, and that's why we believe we should be able to recover the lion's share of our investment, if not all of it, over time."
The 76-minute quarterly call with investors Wednesday included commentary on most of Pershing Square's investments, including Mondelez International Inc. and Canadian Pacific Railway Ltd., while questions e-mailed to the investment team in advance largely focused on Valeant.
Pershing Square Holdings Ltd., the publicly traded security that mirrors the investments of Ackman's hedge fund, began trading in Amsterdam in October 2014. Firm-wide assets under management totaled $11.6-billion at the end of March.
Pershing Square Capital Management, based in New York, often buys large stakes in companies that it sees as undervalued, and pushes management and directors for changes Ackman believes will boost shareholder returns. The firm took two board seats at Valeant in March.