Valeant CEO rumours lift investor spirits
Perrigo’s Joseph Papa said to be in line for job
• Analysts and investors are viewing positively the rumours that Valeant Pharmaceuticals International Inc. may have found its next CEO in Perrigo Co.’ s Joseph Papa, though no one i s downplaying the challenges that would lie ahead for him as the company fights to improve performance and regain credibility.
The Wall Street Journal reported that Papa was in talks with Valeant about replacing outgoing CEO Michael Pearson, who announced in late March he would be stepping down as soon as the Laval, Que.based drugmaker found his successor.
Valeant stocks shot up about six per cent overnight Thursday after the report, and continued climbing, closing Friday at $ 45.57, up another 7.3 per cent or $3.10 on the day in Toronto trading. The stock has tumbled almost 90 per cent since its August peak of $ 346.32 in Toronto.
Gimme Credit analyst Vicki Bryan, long a critic of Valeant, said this could be a move in the right direction — if Papa has the power to make changes to management culture as the beleaguered company faces ongoing problems with regulators and lawsuits.
“Papa seems to have importantly relevant experience running several major pharmacy enterprises,” Bryan said.
“Valeant’s destruction is so massively pervasive the new CEO will have to be a capable operator able to create a legitimate pharma company from ashes while also restoring credibility in all vital relationships while transforming a toxic management structure and culture.”
The 61- year- old Papa has been Dublin- based Perrigo’s CEO since 2006 and was a senior executive at four other pharmacy companies. In 2012 Barron’s voted Papa one of the “World’s Best 30 CEOs.”
“Although Papa had a very strong track record for much of his tenure at Perrigo, execution of Perrigo’s highest-multiple businesses has been mixed in recent years,” Morgan Stanley analyst David Risinger wrote in a note Friday.
“Perrigo’s core US consumer franchise disappointed due to competitive pres- s ures and new product launch delays.”
Papa successfully fought off Mylan NV’s US$26 billion hostile takeover attempt for Perrigo last year. The company’s shares have lost about 36 per cent over the past 12 months.
Papa’s career has recently focused on generic drugs and consumer products, and he last worked with branded pharma companies in 2001 as chief operating officer of DuPont Pharmaceuticals. Analysts say this could be a concern as Valeant’s prescription business is the one which is struggling the most.
“Many observers believe that the key job for the new CEO is to rebuild credibility — and I agree,” Evercore ISI analyst Umer Raffat said in a research note
“However, I think the first job at hand is to finalize managed care contracts. ( The) street wants to see a finalized pricing across the US branded portfolio, both for 2016 and 2017. Once that is done and we have a true floor on numbers/ EBITDA, credibility will follow.”
Both Valeant and Perrigo declined to comment on the Papa rumours. The Wall Street Journal said the appointment has hit a roadblock as the Perrigo board hasn’t said whether it would allow Papa to void a noncompete clause in his contract.
Valeant faces a number of uncertainties that will be taken on by whoever leads the company. It has already angered lenders by failing to file financial statements by the original deadline. Last month the company also revised its 2016 guidance downward and is meanwhile under investigation by the U.S. Securities and Exchange Commission.
“Valeant’s challenges are not insurmountable,” Risinger said. “CEO prospects have to weigh how they will manage a wide range of problems involving the company’s culture, image problems, pricing strategies, managed care formulary access & rebate risks, limited R& D investment, high debt levels, investigations, and lawsuits.”