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Big changes were brewing at embattled drugmaker Valeant Pharmaceuticals International ( VRX ) Monday, as CEO J. Michael Pearson said he’s leaving as major shareholder William Ackman took a larger role in the company. The stock was up 9% in afternoon trading Monday. Valeant said that it had begun searching for a new CEO to replace Pearson, without specifying Pearson’s departure date. Pearson has headed Valeant for a highly transformative eight years, as a battery of acquisitions brought the company from less than $1 billion in annual revenue to more than $10 billion last year, with a policy of cost-cutting and price increases on acquired drugs making Valeant a favorite of investors but a target of criticism elsewhere. Last fall it all started to collapse, however, as a scandal relating to specialty pharmacy Philidor raised larger issues with Valeant’s accounting. In Monday’s announcement, Valeant said that the ad hoc committee that started reviewing company finances five months ago was nearing completion of its work, and Valeant will have to restate financials for all of 2014 as well as the first quarter of 2015. The statement also said that Valeant plans to file its tardy 10-K for 2015 by April 29, which will prevent it from going into credit default. The discovery of new accounting problems in addition to the Philidor-related ones delayed the filing, the company said. Meanwhile, Ackman, head of hedge fund Pershing Square Capital, will join the board in place of Katharine Stevenson. Ackman had indicated in a letter following Valeant’s d isastrous Q4 earnings report last week that he plans to take a more “proactive” role in protecting Pershing’s large investment in the company, so his joining the board was not a surprise. Valeant’s Ex-CFO Takes Heat A noteworthy development, however, was that Ackman was evidently targeting not only Pearson but former CFO Howard Schiller, who served from December 2011 until last April, when he left his CFO position but remained on the board. The Monday press release fingered Schiller and the leadership in general as the main cause of Valeant’s problems. “The improper conduct of the company’s former chief financial officer and former corporate controller, which resulted in the provision of incorrect information to the committee and the company’s auditors, contributed to the misstatement of results,” it said. “In addition, as part of this assessment of internal control over financial reporting, the company has determined 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 been contributing factors resulting in the company’s improper revenue recognition.” The release said that Schiller had been asked to resign from the board but refused, setting things up for even more drama in a company that’s already resembling a soap opera. Later Monday, Schiller issued a statement refuting the charges. “Contrary to the statement in the 8-K and press release, at no time did I engage in any improper conduct that relates to any restatement of revenue the company is considering,” Schiller said in the statement. “In addition, at no time did I ever provide any incorrect information to the Audit and Risk Committee or the company’s outside auditors regarding this accounting issue.” Schiller shifted responsibility to the corporate controller, who has been put on administrative leave, according to Monday’s SEC filing. He said that she was the one who evaluated the Philidor situation and decided how to account for it, and he trusted her opinion. Valeant said that, on a preliminary basis, the restatement will subtract $58 million from 2014 revenue and 9 cents from EPS. The first quarter of 2015 should lose $21 million in revenue but gain 7 cents a share in earnings, it said. Wall Street analysts have been turning against Valeant and its management with a vengeance lately, and Monday brought two more downgrades before the CEO news came out. Morningstar warned that change isn’t going to come cheap. “We currently incorporate more than $1 billion in restructuring, legal, and other charges over the next few years,” wrote Morningstar analyst Michael Waterhouse in a research note. Valeant stock rose as much as 17% in early trading on the stock market today , above 31.50, but shares also slipped a bit later and fell below 26, the stock’s lowest price since November 2010. Shares have still plummeted nearly 90% since hitting an all-time high in early August near 264. Scalper1 News
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