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Wells Fargo Just Cut Its Valeant Estimates Because of Executive Bonuses

Valeant Pharmaceuticals International Inc. Executives Testify At Senate Hearing On Drug PricesValeant Pharmaceuticals International Inc. Executives Testify At Senate Hearing On Drug Prices
Michael "Mike" Pearson, chairman and chief executive officer of Valeant Pharmaceuticals International Inc., left, speaks as Howard Schiller, former interim chief executive officer and former chief financial officer of Valeant Pharmaceuticals, center, and William "Bill" Ackman, founder and chief executive officer of Pershing Square Capital Management LP, listen during a Senate Special Committee on Aging hearing on Valeant Pharmaceuticals in Washington, D.C., U.S., on Wednesday, April 27, 2016. After months of turmoil, which began with a controversy over the price increases of two cardiac drugs by 525 percent and 212 percent, Valeant has lost more than 85 percent of its stock market value, failed to file its annual report, and said it is being investigated by the U.S. Securities and Exchange Commission. Photographer: Andrew Harrer/Bloomberg via Getty ImagesAndrew Harrer — Bloomberg via Getty Images

Valeant Pharmaceuticals (VRX) has made another misstep—and this time it has to do with executive compensation, according to Wells Fargo.

On Monday, Valeant disclosed additional bonuses for some of its executives in a regulatory filings with the Securities and Exchange Commission. That included several executives who held managerial positions when Valeant faced regulatory scrutiny and public backlash, such as Chief Financial Officer Robert Rosiello, and Executive Vice Presidents Ari Kellen and Ari Whitaker. Each of the three received a $1 million cash bonus for staying with Valeant, and equity awards wort as much as $3.8 million on top of their existing bonuses and salaries.

To Wells Fargo analysts however, the bonuses seem insensitive in light of the company’s recent history with drug price gouging allegations. Enough so that the analysts led by Davis Maris cut their valuation range for Valeant from $30 to $31 down to $27 to $31, saying the compensation increases will likely worsen the company’s already decaying public image and sputtering sales.

“It is not hard to see the criticism that the retention bonuses are being paid with money Valeant gained through excessive price increases and being paid to executives who in part helped oversee these pricing programs,” the team of analysts wrote. “We are surprised by these bonuses as we believe this opens the company up to criticism of being brazen in the face of public and government scrutiny for pricing practices.”


Wells Fargo also noted that while Valeant reaffirmed first quarter earnings per share guidance, but that full year guidance was conspicuously absent.

Wells Fargo also revealed that it had submitted request for some Valeant’s documents under the Freedom of Information Act, which will become public May 24.

Valeant is also reportedly considering selling its dermatology business, Obagi Medical Products, and Provenge, its prostate cancer business, in order to shed some of its $30 billion debt, Bloomberg reported.