Top executives at Valeant Pharmaceuticals International sought to reassure a small crowd at the drug maker’s annual meeting last week that the company is on the right track.
As they did, a ghost from the company’s past was moving on plans to resurrect himself and reopen old wounds.
Milan Panic, the controversial founder and former chief executive of what now is Valeant, says he’s mounting a campaign to express dissatisfaction with the company’s performance since his 2002 ouster at the hands of a shareholder rebellion.
“I hope that every shareholder who was there would agree that something needs to be done,” Panic said of Valeant’s annual meeting at its Costa Mesa headquarters.
Panic has filed a lawsuit in Orange County Superior Court alleging that Valeant directors intentionally drove down the company’s shares with false claims about performance. That allowed them to profit off stock options granted at low prices, the suit charges.
Valeant’s shares lost more than half their value in July 2002 after management warned of a quarterly loss instead of a profit expected by Wall Street. The shares rebounded by the end of 2004.
The suit targets Valeant Chairman Robert O’Leary and director Randy Thurman, both of whom were backed by dissidents in the 2002 proxy battle that ousted Panic. Both received options after his ouster.
Panic also has hired Magnuson & Waters, a Laguna Hills-based public relations firm, to help make his case against Valeant.
Panic said he’s considering writing to the Securities and Exchange Commission, possibly to request a look at the drug maker’s stock options grants and the buyback of a unit that was spun off.
Valeant officials declined to comment, citing the suit against O’Leary and Thurman.
Comeback Bid?
So is Panic thinking about trying to take back Valeant?
“First thing, I am way too old to do that,” said the Serbian native, who turns 77 in December. “I will organize younger people, better management, people with proven performance to do that, if I do that. I’m considering that.”
It would be a long shot.
For one, Panic no longer is a major shareholder. He doesn’t show up in any of Valeant’s SEC filings, indicating he owns less than 5% of the company. He declined to say how many shares he owns.
And Valeant’s big institutional investors, some of whom fought to remove Panic, are unlikely to back any comeback bid.
Two key dissident shareholders in the proxy war,Iridian Asset Management LLC of Westport, Conn., which owned 12% of Valeant as of Dec. 31, and Franklin Asset Management, a unit of San Mateo-based Franklin Templeton Inc. and owner of 6.4% of the drug maker,declined to comment.
The dissidents once said one of their key goals was ridding the drug maker of “the depressing effect of Milan Panic’s leadership.”
Panic, who started Valeant precursor ICN Pharmaceuticals Inc. in 1959 and firmly led the company for more than four decades, said he might consider a buyout to take Valeant private, if he can find financial backers.
His argument against Valeant’s management is similar to what Panic critics leveled against him: The company is underperforming and is undervalued.
He’s quick to make comparisons.
In 2001, the last full year under Panic, then ICN made $64 million on sales of $858 million. By spring 2002, shortly before his departure, ICN’s market value was $2.6 billion.
Last year, Valeant lost $188 million on sales of $823 million. The company’s market value last week was $1.5 billion, down some 40% from Panic’s time.
“As you remember in the proxy fight, they promised to run this much better,” Panic said. “If that is performance, I don’t know what is not performance.”
Panic, the Dissident
Panic, sounding like the dissidents who ousted him, said: “I’m giving them a sign that I’m not going to leave them alone anymore. I think it’s time that after four years, that management must be changed.”
These days, Panic runs Irvine-based MP Biomedicals LLC, a medical research and testing company with about $70 million in yearly sales.
Valeant has spent much of the past four years breaking from the Panic era. The company has sold off Panic’s pet projects in Eastern Europe and sought to focus on key drugs and big markets.
“This is a completely new and revitalized company bearing no resemblance to the former ICN,” Chairman O’Leary said in 2003.
At last week’s shareholder meeting, Chief Executive Timothy Tyson, who isn’t a defendant in Panic’s lawsuit, pointed to milestones.
They include Food and Drug Administration approval for Cesamet, an anti-nausea drug, the acquisition of hepatitis C drug Infergen and clinical trial progress on Zelapar, a drug to fight Parkinson’s disease.
“Ultimately, we are positioning (Valeant) to be a profitable, cash-generating specialty pharmaceutical company,” Tyson said.
The company’s made other moves. Last year, Valeant paid $324 million to buy San Diego’s Xcel Pharmaceuticals Inc., a privately held maker of neurology drugs.
Valeant also has steadily upped research and development spending. In the first quarter, research spending was 16% of sales and was up 15% from a year earlier.
Valeant Setback
Still, Valeant has had issues that even shareholders without an ax to grind might point to.
Earlier this year, trial results for hepatitis C treatment Viramidine proved no more effective than the standard treatment, a cocktail including Valeant’s ribavirin.
Valeant officials have pinned great hope on Viramidine to replace ribavirin, which has seen sales drop amid generic competition.
The Viramidine issue has led some analysts to criticize Valeant for spending money on what they regard as a losing cause.
Tyson said last week the company plans to evaluate the economics of pushing ahead with Viramidine.
A former GlaxoSmithKline PLC executive, Tyson took over as chief executive in early 2005 as part of Valeant’s transformation. He came to the company as president in 2002.
That same year, dissident shareholders won a challenge that led to the election of independent directors O’Leary, Thurman and Richard Koppes, over a slate put forth by Panic.
With wins a year earlier, dissidents gained the majority of board seats and brought about Panic’s resignation.
In his lawsuit, Panic contends he lost more than $20 million “due to (defendants’) wrongful conduct” in the ensuing years.
He is seeking unspecified damages, restitution and a permanent injunction, among other things.
Asked if he expects the suit to go to trial, Panic simply said, “I want to see (management) out of the company.”
