The CEO of Valeant Pharmaceuticals is leaving, a director has resigned, and the embattled drug company wants another director to leave too, as it works to clean up its financial statements and resolve several investigations.
Shares of the Canadian drug company, which had slid to nearly a tenth of the all-time high they hit last summer, rallied Monday after it announced the management shake-up.
Valeant said that current CEO J. Michael Pearson will stay until his replacement has been appointed. Pearson recently returned from a two-month medical leave. The company did not specify whether he is resigning or if he had been asked to leave.
Valeant also said it added activist investor William Ackman to its board, and director Katharine B. Stevenson resigned to make room for him. The board requested that Howard Schiller resign too. Valeant said the former chief financial officer, who served as interim CEO during Pearson’s medical leave, has refused to do so.
“These changes were absolutely necessary,” said Steve Brozak, who follows the pharmaceutical industry as president of WBB Securities.
Valeant’s stock soared last year as it focused on a growth-through-acquisition strategy that included buying older drugs and then hiking their prices. But the company has been swamped in recent months with a host of problems including massive debt, ongoing federal probes of its accounting and pricing practices, and shareholder lawsuits in the U.S. and Canada.
Valeant faces Securities and Exchange Commission investigations, including an inquiry into accounting and inventory issues at Salix Pharmaceutical, a drugmaker that Valeant bought for $11 billion last year. It also has faced Congressional scrutiny of its pricing practices.
Last month, Valeant said it would delay filing its 2015 annual report with regulators while it sorts out its former relationship with the mail-order pharmacy Philidor. Valeant has said about $58 million in sales to Philidor were improperly recognized too early — when they were delivered to Philidor, rather than when patients received the products.
Valeant said in a release that its financial statements for the fourth quarter and full year of 2014, as well as financial statements through September 2015, should not be relied on and will be restated.
The company said it plans to file its annual report for 2015 on or before April 29. That should put it back in compliance with financial reporting requirements of its creditors and bond holders, but they could choose to declare Valeant in default because the report should have been filed this month.
Valeant Chairman Robert Ingram said Monday in a statement that while Valeant has gone through some difficult months, he was confident in the company’s ability to “rebuild its reputation and thrive under new leadership.”
Valeant said Monday that its improper revenue recognition may have stemmed in part from “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.”
Ackman, the activist investor, will join Valeant’s board immediately. His Pershing Square Capital Management holds a 9 percent stake in the drug company and already has another executive, Stephen Fraidin, on Valeant’s board.
Ackman had recently sent his hedge fund investors a note stating that Pershing will “take a much more proactive role at the company to protect” its investment.
Valeant shares jumped more than 7 percent, or $2, to $28.98 Monday, while broader indexes were largely flat. Even with Monday’s gain, the stock price is still only a fraction of the all-time high price of $263.81 that it reached last August.