Proving the importance of financial transparency--and the dangers of dramatic price-hikes
Name: J. Michael Pearson
Title: CEO of Valeant
It wasn't all that long ago that Valeant ($VRX) looked like a pretty good company to emulate. Under the direction of CEO J. Michael Pearson, it spent little on R&D and lots on acquisitions, a strategy that pleased Wall Street and last summer sent its stock price to new heights.
Plenty of CEOs were taking pages from Pearson's playbook, either by feasting on his signature M&A or eschewing risky, early-stage research.
But the good times didn't last for the Canadian pharma, and these days, you won't find any drugmakers trying to follow in its footsteps.
Instead, Pearson and Valeant drew up a pretty good blueprint on what not to do, and it's one the industry could be consulting for years to come.
The drama started for Valeant last summer, when hefty price hikes on a pair of newly acquired heart drugs made headlines and drew a hard look from Congress. As Pearson held out on providing the information lawmakers wanted, their ire built, and by the time Martin Shkreli became pharma's most-hated figure overnight with his 5,000%-plus price-hike on Daraprim, Valeant was unwittingly thrust into the spotlight as a fellow poster child for "price-gouging."
The negative attention put a dent in shares, and presidential candidate Hillary Clinton's Twitter vow to take action on drug pricing had Valeant investors worried that government intervention could cripple the company. But the problems were only getting started.
In October, short-seller Citron Research lobbed accusations that Valeant had used its specialty pharmacy relationships--particularly with one company called Philidor--to inflate its top line. Valeant denied the claims, but in the weeks that followed, reports of shady Philidor business practices--and Pearson and Valeant's inability to simply and logically explain its relationship to the pharmacy--spooked investors further, prompting the drugmaker to sever all its Philidor ties.
Valeant's outlook took a hit on that move, and its new distribution deals with Walgreens ($WBA)--meant to make up for some of that lost business--have angered payers enough to convince them to freeze out some of the company's products. And in February, Valeant's own investigation into Philidor spurred it to restate earnings from 2014 and 2015.
The Philidor saga was "a painful learning experience," Pearson said in November. And he admitted that failing to "take the time to listen to what the broader world outside your company is saying" was "a mistake."
Now, you won't find too many CEOs working to be like Mike--including Pearson himself. He's already promised to nix most of the company's planned price increases for the year and take a break from M&A, and in late February, when he retook the helm after a two-month medical leave of absence, he pledged to bolster the company's relationships with payers, regulators and government officials "while improving Valeant's reporting procedures, internal controls and transparency."
"I realize that recent events are disappointing to everyone," he said in a statement. "It is my responsibility to set the appropriate tone for the organization."
-- Carly Helfand (email | Twitter)
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