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Boston - Michael Pearson and his company, Valeant Pharmaceuticals International, were supposed to calm Wall Street doubters on Tuesday. Instead: chaos.
What began before dawn with disappointing financial news quickly snowballed into the worst day in the drug company’s history, leaving investors wondering if Pearson, its controversial chief, can regain his grip.
The CEO, who built Valeant on a stream of acquisitions, returned from a two-month medical leave for pneumonia just two weeks ago. He found the company in worse shape than he left it after last year’s drug-pricing scandal.
And then came Tuesday. The indignities came fast and furious: a $600m typo in a press release, a conference call that left analysts and investors baffled and angry, Valeant’s top investor, the Sequoia Fund, losing $1.26bn on a 51% stock drop, and news that the company doesn’t have its numbers straight enough to file its earnings reports on time, potentially imperiling its ability to stay compliant with the repayment of debt that’s ballooned to $30bn.
More negative
“Every time the company convenes a call it seems that there’s something new revealed that’s worrisome,” said David Amsellem of Piper Jaffray & Co in New York. “All of this leads me to conclude that the management doesn’t have a good handle on these various businesses.” Amsellem changed his rating after the conference call to “underweight” from “neutral”.
On Tuesday, Valeant fell the most ever to $33.51. In July it was as high as $257.53.
Laurie Little, a Valeant spokesperson, declined to comment.
If Valeant were to restore investor confidence, it would have to overcome what might’ve been the worst analyst call in the history of analyst calls.
Chief Financial Officer Rob Rosiello referred to a slide that showed that by one measure, its 2016 earnings would be $6bn. Three hours earlier, the company had said in a press release it would be as much as $6.6bn.
‘You want to be an investor, not a gambler’
“There are too many weird things happening here,” said Matthew Duch, a money manager at Calvert Investments in Bethesda, Maryland, which oversees more than $13bn. “There were typos. That just shows the lack of controls, the lack of detail. And if it’s happening at these levels, where does it end? You want to be an investor, not a gambler.”
Pearson said that due to the repercussions of a scandal concerning the mail-order pharmacy Philidor Rx Services that was uncovered last year the company would be late filing financial results. A delay could put Valeant in technical default on its debt. The company may also have to sell “non-core assets” to pay creditors, Pearson said.
“Just when you think their credibility can’t get any lower, they manage to lower it,” said Jack Flaherty of New York-based GAM USA, which owns Valeant debt.
Despite Pearson’s gaffes, David M Steinberg, a Jefferies analyst in San Francisco, said he doubted that Valeant’s board would move to replace the CEO.
“The board as little as three weeks ago made a decision and they chose to bring him back,” Steinberg said. “So unless they were shocked by today’s results and guidance, then I would assume he’ll probably be there for a while.”
'From growth company to cigarette butt'
Bill Ackman, the billionaire whose Pershing Square Capital Management is one of Valeant’s biggest stockholders, said on Tuesday that investors have lost “total confidence” in the company. Pershing’s vice chairperson, Stephen Fraidin, joined the Valeant board last week.
Pershing Square lost more than $750m on Tuesday’s stock drop. Paulson & Co, another big stockholder, lost more than $400m, according to data compiled by Bloomberg.
Concerns about Valeant’s business practices, such as how it prices its drugs, have turned the drugmaker from one of the market’s top-performing stocks into one of its worst. From 2010 to August 2015, Valeant shares rose more than 10-fold. Since then, they’ve lost 87% of their value.
“They’re going from a growth company to a cigarette butt,” said Gary Herbert, a fund manager at Brandywine Global Investment Management in Philadelphia, which oversees about $57bn, including Valeant debt. “The market would be well served to see material management change soon.”
