J. Michael Pearson sold off global units, cut jobs and acquired companies in his first year at the helm of Aliso Viejo-based drug maker Valeant Pharmaceuticals International.
The effort won cheers on Wall Street, where Valeant ended 2008 up 90% on a market value of $2 billion, the best showing of any major Orange County stock last year.
But Pearson, who took over as Valeant chief executive last February, said he’s only about halfway through restructuring with more to come in 2009.
“There are still many more things we have to get accomplished,” said Pearson, a turnaround specialist who hails from McKinsey & Co.
Pearson said he’s now focused on spurring growth at Valeant, a break from 2008’s cost-cutting, which led to nearly half of the drug maker’s work force being slashed and several operations being sold off, including a nearly $400 million sale of Valeant’s European business.
“2009 will continue to be the second half of the turnaround,” Pearson said.
Valeant makes antiviral, skin and neurology drugs. They’re used to treat hepatitis C, skin cancer, epilepsy and other conditions. The company has $755 million in projected sales for 2008.
Pearson is the second chief executive to try his hand at reworking Valeant since its days as ICN Pharmaceuticals Inc. under autocratic founder Milan Panic, who was ousted by dissident shareholders in 2002.
Before Pearson, former GlaxoSmithKline PLC executive Tim Tyson worked to slim down Valeant’s far-flung global operations and narrow the company’s drug focus.
But Tyson came under fire in late 2007 for losses and what some analysts saw as a lack of direction.
Pearson replaced Tyson just weeks before Valeant surprised Wall Street with a loss and lower than expected sales for the fourth quarter of 2007.
New Challenges
“You really can’t criticize Pearson at all for what he was handed and what he’s done with it,” said Gene Mack, who follows Valeant for Lazard Capital Markets LLC in New York. “But I think his greatest challenges lay before him.”
Pearson’s challenge is in moving beyond restructuring to “growing the business and building shareholder value over the long term,” Mack said.
For growth, Pearson said he’s looking to expand what Valeant already has. Last year, he made several deals to boost the company’s skin drug business.
Last month, Valeant paid $285 million for Dow Pharmaceutical Industries Inc., a Northern California-based maker of drugs to treat acne and skin conditions.
A few months earlier, Valeant bought Australia’s DermaTech Pty Ltd. for $12.2 million and Fort Worth, Texas-based Coria Laboratories Ltd. for $95 million.
Valeant also is looking to retigabine, an epilepsy drug in late-stage development.
The company, which is working with GlaxoSmithKline on retigabine, plans to seek Food and Drug Administration and European approval this year with possible clearance in 2010.
“I think a lot of the company’s fortunes rest on retigabine at this point,” Mack said.
Pearson said he disagrees with a past criticism of Valeant,that it needs a blockbuster drug.
“We’d be delighted to get a blockbuster,any pharmaceutical company would be,” Pearson said. “But that’s not our strategy. We are not a big enough company that we need a blockbuster.”
Valeant is more interested in drugs that generate yearly sales of $50 million to $100 million, “and in some cases less than that,” analyst Mack said.
“They’re not in the business of blockbusters,” he said.
Valeant’s biggest seller is skin lesion drug Efudex, which has yearly sales of about $75 million.
Part of Pearson’s strategy has been to hand over some drug marketing and development to Big Pharma.
For retigabine, Valeant signed a development deal in October with GlaxoSmithKline.
Former chief executive Tyson’s past ties to GlaxoSmithKline didn’t play into Valeant’s decision to pick the British drug maker as its partner, according to Pearson.
“It was coincidental,” he said.
Valeant picked GlaxoSmithKline because it had sales and research and development operations for epileptic drugs.
Valeant’s refocusing de-emphasizes drugs for infectious diseases,a key product in its past as ICN was ribavirin, a hepatitis C treatment that now faces generic competition.
Valeant’s not counting on taribavirin, the successor to ribavirin, as a core product, Pearson said. Instead, the company is looking to license out the drug and get royalties.
“The company was just focusing on too many therapeutic areas,” Pearson said.
Valeant is an unlikely takeover target for a large drug maker, according to Mack.
A recent PricewaterhouseCoopers LLP survey predicted cash-rich big drug companies could be looking to buy smaller, specialty drug makers to build up their shrinking pipelines.
But Valeant isn’t likely on many shortlists, Mack said.
“It’s tough to see them as an acquisition target here, given what else’s out there,” he said.
