Valeant's Pearson will step down as CEO; Ackman joins Board
- Valeant CEO Michael Pearson will step down as CEO once a successor is found, the company announced on Monday.
- Additionally, activist investor and CEO of Pershing Square Bill Ackman will join the Valeant board, adding to Pershing Square's representation. The vice chairman of Pershing Square, Stephen Fraidin, had previously joined the board on March 9. Ackman and Pershing Square have long backed Valeant, even as its accounting and pricing troubles dragged the stock from highs of $260 down to below $30 (as of last week's close).
- The company plans to file its much-delayed Form 10-K with the SEC "on or before" April 29, 2016. In a business update on March 15, Valeant had said the postponed filing could lead to a potential default and that it would be working with lenders to receive an extension.
- Due to misstatements related to its relationship with the specialty pharmacy Philidor, the board determined several of its previous financial statements from 2014 and 2015 could "no longer be relied upon."
Pearson returned from medical leave only three weeks ago. Since then, however, the company has announced a previously undisclosed SEC investigation and downgraded its projection for 2016 sales by $1.5 billion.
"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," Pearson said.
After Valeant's stock collapsed by over 50% following the company's botched business update, Bill Ackman pledged a "much more proactive role" in the company. Now, Ackman will join Valeant's board, further adding to Pershing Square's representation among Valeant's leadership.
In a statement, Ackman pitched Valeant's potential. "The company's large scale and dominant franchises in eye care, dermatology, GI, and other therapeutic areas coupled with its extraordinarily low valuation present a spectacular opportunity for a world-class health care executive," he said.
As a result of Ackman joining the board, director Katharine B. Stevenson voluntarily resigned from her position. Furthermore, the board requested that Valeant's former chief financial officer Howard Schiller resign as well, but Schiller has not complied yet.
Misstated financial results
Additionally, the board indicated Valeant's financial statements for the year ending December 31, 2014, as well as the first quarter report from March 31, 2015 should "no longer be relied upon" due to misstatements related to its now-severed relationship with the specialty pharmacy Philidor. Since the first quarter results were included in its second quarter and third quarter reports as well, the board determined those reports were no longer reliable either. Previously, Valeant announced the misstatements would result in lower 2014 revenues by $58 million.
In its 8-K filing with the SEC, Valeant attributed some of these errors to improper conduct of its former CFO and Corporate Controller. This improper conduct was coupled by weak internal governance, according to the filing. "Management, in consultation with the Committee, has concluded that one or more material weaknesses exist in the Company’s internal control over financial reporting," the document said.
Potential default looms
Due to the ongoing internal investigation by the ad hoc committee of the board of directors into Valeant's relationship with Philidor, the company has continued to postpone the filing of its annual report with the SEC. The statement issued today indicated the report would likely be filed "on or before" April 29.
If Valeant doesn't file its annual 10-K report with the SEC by March 30, 2016, the company will default under its credit facility. It will then have 30 days (until April 29) to remedy the default through filing the delayed report.
Additionally, Valeant might also receive a "notice of default" under its bond contracts because of the ongoing 10-K delay. This would start a 60-day clock for Valeant to file the report.
A law firm assisting the ad hoc committee has reviewed more than one million documents as part of the overall review of Valeant's accounting, according to the company.
BioPharma Dive will continue to update this post as it examines Valeant's 8-K filing with the SEC.
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