Valeant Pharmaceuticals is replacing its CEO and blaming its former chief financial officer for misstated earnings, an allegation he rejects.
The embattled Quebec drugmaker announced a shakeup Monday that will see Michael Pearson leave the company following a succession of setbacks that have hammered its reputation and sapped its stock value.
"It’s been a privilege to lead Valeant for the past eight years," Pearson said a statement.
"While I regret the controversies that have adversely impacted our business over the past several months, I know that Valeant is a strong and resilient company, and I am committed to doing everything I can to ensure a smooth transition to new leadership."
Once one of Canada’s most valuable companies, Valeant has been embroiled in controversy for months.
It is facing allegations of gouging customers on drug prices, accusations it has denied. It is also under investigation by the U.S. Securities and Exchange Commission, U.S. Attorney’s offices in Massachusetts and New York, as well as Congress, as part of their probes into price hikes for certain drugs.
Last month, Valeant announced it had to restate its financial results for 2014 and 2015 after discovering that about US$58 million of sales were recognized at the wrong time. It hopes to submit its restated financial statements for 2015 to regulators by April 29.
On Monday, the company assigned some of the fault on Howard Schiller, its former chief financial officer who sits as a board director. Valeant accused Schiller of "improper conduct" in providing incorrect information to an audit and risk committee and the company’s auditors, adding that it continues to assess its financial reporting and disclosure procedures.
"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," Valeant said.
Valeant also said an internal committee review concluded that the company’s heavily performance−based focus may have affected compensation decisions for some top managers and contributed to the company’s improper recognition of revenues.
Valeant’s board requested that Schiller tender his resignation as a director, but he refused. It also placed corporate controller Tanya Carro on administrative leave. Carro couldn’t be reached for comment.
In a statement, Schiller denied Valeant’s allegation that he provided incorrect information. He said the misstated sales figures were the result of "a careful and reasoned accounting decision" by the corporate controller based on what she considered to be complete and accurate facts.
"As a result of the fact that I did not engage in any improper conduct regarding this proposed restatement, I have respectfully declined the request from the company’s board to resign from the board," Schiller said.
Schiller filled in for Pearson during a two−month medical leave early this year after resigning as CFO last June. Pearson will leave after his successor is named, the company said.
Valeant also announced that New York−based activist investor Bill Ackman will join its board of directors. Ackman’s Pershing Square Capital is a significant shareholder in Valeant (TSX:VRX). The activist investor also partnered with Valeant in a failed hostile bid to acquire Botox maker Allergan Inc.
Industry analysts say Pearson’s departure is a positive step, although they are alarmed by new accounting issues raised by the internal review.
Some also question why the board didn’t act sooner.
"It’s not just the CEO that needs to change here and adding Bill Ackman to the mix," said Vicki Bryan, an analyst with corporate bond research company Gimme Credit.
She said the company is at serious risk and needs to sell assets to severely cut its US$30 billion debt.
"This is a very troubled company that the company’s aggressive strategies have been trying to mask for years."
On the Toronto Stock Exchange, Valeant’s shares gained more than nine per cent at C$38.20 in afternoon trading. That’s still a steep decline from its peak closing stock price of C$346.32 last August.
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