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Valeant CEO Says Board Is ‘Welcome to Fire Me’

J. Michael Pearson, chief executive officer, Valeant Pharmaceuticals International Inc., speaks during the Bloomberg Economic Series: Canada 2015 in Toronto, Ontario Thursday May 21/2015. (Photo by Kevin Van Paassen/Bloomberg)J. Michael Pearson, chief executive officer, Valeant Pharmaceuticals International Inc., speaks during the Bloomberg Economic Series: Canada 2015 in Toronto, Ontario Thursday May 21/2015. (Photo by Kevin Van Paassen/Bloomberg)
J. Michael Pearson, CEO of Valeant Pharmaceuticals International, speaks during the Bloomberg Economic Series: Canada 2015 in Toronto, Ontario in May 2015.Kevin Van Paassen © 2015 Bloomberg Finance LP

Valeant Pharmaceuticals International, the beleaguered drug company whose various scandals have cost it more than half of its stock market value in the past three months, detailed its pain as well as its turnaround efforts at its investor meeting on Wednesday.

Though the drugmaker had announced on Tuesday a partnership with Walgreens to distribute drugs at reduced prices—which had pushed the price of Valeant (VRX) stock up more than 16%—it significantly lowered its financial outlook for the year as well as 2016.

Citing losses associated with business disruption stemming from allegations of improper practices and accounting related to a specialty pharmacy Philidor Rx Services (with which Valeant has since severed its relationship), Valeant now projects up to $10.5 billion in revenue for 2015, down from its original forecast of $11.1 billion. It also slashed its 2015 earnings forecast, to between $10.23 and $10.33 per share, as much as 14% below its previous expectations. For 2016, it cut its profit outlook to about $7 billion from the $7.5 billion it had predicted earlier, on revenues of about $12.6 billion.

During its investor day, Valeant declined to answer questions about its board’s pending review of the Philidor scandal or about federal government investigations into its drug pricing. But the company and its CEO J. Michael Pearson offered some colorful commentary on Valeant’s recent distress and what it is doing to claw its way back (which might help explain why Valeant’s stock price rose as much as 8% during the company’s presentation). Here are some of the surprises:

1. No one got fired—but Valeant paid them to stay.

Valeant highlighted the fact that no one in management has resigned or left the company during its rough patch—unusual, as corporate scandals often prompt an employee exodus or necessitate that heads will roll. But in Valeant’s case, workers had a reason to stay: the company promised “employee retention bonuses” worth more than $100,000 per person (an outlay totaling $75 million in stock compensation) in 2016. The incentive is intended to compensate employees for having to bear the reputation damage of Valeant’s woes, and the headache of dealing with admonishments from neighbors and family members, CEO Pearson said. “It’s tough, to go home, ” he said. “There’s an extra price. Most companies pay people a little bit more if they go to an emerging market or a dangerous place—our emerging market is the United States.” He added that the executive team did not receive any additional compensation: “Nor should we.”

2. Valeant CEO: The board is “welcome to fire me.”

Amid recent speculation that Pearson is in the hot seat and his job on the line, the CEO responded to an analyst’s question about whether he still enjoyed the full support of his board. “In terms of my commitment, I’m very committed,” Pearson said, though he acknowledged that he serves at the pleasure of his directors: “If the board wants to fire me, they’re welcome to fire me. But until they do, we’re going to get through this thing.”

 

3. Valeant gave its drugs away for free.

After cutting ties with Philidor Oct 30, Valeant said it “provided free scripts” for the next nine days, until Nov. 8. Since then, it has refilled prescriptions without asking insurance companies for reimbursement. That’s helped put a dent into its balance sheet: The company said it lost 20% of its prescription revenue from “business disruption” in the fourth quarter—all of which came from Philidor.

4. Valeant CEO, still “pissed” at short-sellers, is also taking heat from little investors acting like activists.

Pearson said he first found out about the potential problems with Philidor when short-selling firm Citron Research called the company the “pharmaceutical Enron” in a report in October, and isn’t letting it go. “I was a little pissed when they came out with their report, because it’s not our company,” said Pearson, swearing that Valeant will fight to disprove the “false” allegations. “We just went through a period where the shorts attacked us, they attacked us hard, and that’s behind us.”

While major Valeant shareholder and Pershing Square hedge fund manager Bill Ackman has defended the company in the past, he was silent during Wednesday’s event. But an individual investor spoke up during the question-and-answer session, noting that he had taken a vacation day to attend the meeting. He lamented that he bought a lot of Valeant stock, but, “Every time I bought more shares the stock price kept going down,” and questioned whether Valeant might buy back stock to improve the share price. Pearson reassured him that, “I sold a lot of shares at a very low price, too,” to audience laughter and applause, but said Valeant’s bigger priority was paying back its debt.

5. Women aren’t filling their ‘female Viagra’ prescriptions—but don’t call it ‘female Viagra.’

Before Valeant’s recent troubles, it acquired Sprout Pharmaceuticals, the maker of Addyi, otherwise known as “female Viagra” in August. While Valeant is expecting Addyi sales of $100 million to $150 million in 2016 (a disappointing estimate by some measures), it said at its investor day that women’s unusual behavior might explain the lackluster sales: The amount of Addyi prescriptions that women had filled as of Dec. 11 were 82% less than the amount of prescriptions written. (On a related note, the company is pursuing another approval of the drug, which is currently only indicated for premenopausal women, for older ones that have already gone through menopause.) Still, Pearson said he eschewed the nickname “female Viagra” and wants to “roll back the moniker” as it might lead people to expect Addyi sales to measure up to the blockbuster success of Viagra, the male-only drug that generated many billions of dollars in sales.