Valeant Pharmaceuticals International Inc.'s future as a contrarian drug maker is in jeopardy as the man who pioneered its strategy exits after eight years.
Michael Pearson, the former pharmaceutical consultant who turned the company from unfocused money loser into an aggressive acquirer, will stay on until a new leader can be found and appointed. He said in a statement that he is left with a feeling of regret over the many controversies that ensnared the Laval, Que.-based company, such as accounting issues, short-seller attacks and probes from regulators and law-enforcement agencies.
Left to pick up the pieces is a board of directors in turmoil after a shakeup yielded a place at the table for activist investor Bill Ackman, whose Pershing Square Capital Management LP owns 9 per cent of the company. Making way for Mr. Ackman on the board is Katharine Stevenson, who voluntarily stepped down to create a vacancy for him.
Former chief financial officer Howard Schiller is now fighting to defend his seat – and his reputation – after the company asked him to leave, alleging "improper conduct."
Valeant's stock plunged last week after management cut expectations for the company's growth and recovery. Mr. Pearson said the drug maker was facing "a bit of a starting-over point" and that there was work to be done to regain investor confidence after months of confusion about Valeant's financial reporting and operations.
Now Valeant could be facing a deconstruction. David Maris, an analyst at Wells Fargo, said the company would likely be broken up and sold off in pieces. "We believe eventually Valeant will decide to review core and non-core areas for potential divestiture," he wrote in a note to clients. "We note that the market in which Valeant bought the assets was more ebullient than the current market."
Valeant's swift rise came on the back of aggressive prescription drug price increases and a rapid succession of acquisitions. But late last year, short sellers targeted the company over business practices such as its use of mail-order pharmacy affiliate, Philidor Rx Services, which later shut down. Valeant developed an ad hoc committee of the board to investigate Philidor and other corporate practices – it found that financial results related to Philidor had been misstated.
On Monday, Valeant said this incorrect information was partly the fault of its former corporate controller, who was not named and has been placed on administrative leave. It also pointed to Mr. Schiller, who was CFO between December, 2011, and June, 2015, and recently served as interim CEO during Mr. Pearson's two-month hospitalization for pneumonia. The company said it asked Mr. Schiller to resign as a director, but he refused.
In a separate statement Monday, Mr. Schiller said he has declined to quit the board because he never provided any incorrect information to the company's audit and risk committee – or outside auditors – related to the accounting issue in question. He added that "at no time did I engage in any improper conduct that relates to any restatement of revenue the company is considering."
Valeant said in a statement that it is aware of Mr. Schiller's views but stands by its statements.
The committee said it previously found $58-million in net revenue relating to Philidor that shouldn't have been recorded. On Monday, the company said investors should no longer rely on many of its financial reports from 2014 and early 2015, owing to misstatements.
Reviews of the company by management and the committee have found that the high-pressure culture at Valeant could have contributed to some of the drug maker's recent issues with its misstated revenue figures.
The company also found that the "tone at the top of the organization and the performance-based environment at the company, where challenging targets were set and achieving those targets was a key performance expectation" may have contributed to revenue being improperly accounted for. Mr. Pearson was known as a leader with a direct, fact-based communication style, and valued speed and agility in decision-making.
Valeant said it plans to correct its figures in the filing of its audited annual report, called a 10-K, which is currently late, to be filed with the U.S. Securities and Exchange Commission and Canadian securities regulators. The plan is now to file those forms by April 29.
Along with financial reporting issues, Valeant has also been grappling with slowing growth prospects and heavy debts left over from rounds of acquisitions in recent years.
Before his illness, Mr. Pearson told The Globe in mid-December that he felt he had a responsibility to see the company through the turmoil and at that time described the board as completely supportive of his leadership.
"I've developed this strategy. There's been a lot of people who worked like crazy to do this, and both for our investors and our employees," he said at the time. "What I have told the board is if I am not the right person to do this, that's fine. You let me know."