Valeant Pharmaceuticals International’s been run by a dictatorial founder and a vanilla veteran of Big Pharma. Now it’s a turnaround consultant’s turn.
J. Michael Pearson took over Feb. 1 as chief executive of the county’s No. 3 drug maker, Aliso Viejo-based Valeant. He replaces Tim Tyson, who led Valeant since early 2005.
Pearson, a turnaround specialist who hails from McKinsey & Co., also takes over as chairman from Robert Ingram, who remains as Valeant’s lead director.
The change comes after what’s been a tough year for Valeant in which its stock has fallen by a third to a recent market value of $1 billion. The company has been in restructuring mode for much of the past few years, and some on Wall Street have questioned its ability to come up with drugs to spur growth.
Valeant, which has some $875 million in yearly sales, makes hundreds of drugs, including medicines to fight infectious diseases, skin conditions and nervous system conditions. Products include Efudex, used to fight skin lesions, and Bedoyecta, a vitamin line aimed at Hispanics.
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Pearson at Seton Hall University’s Whitehead School of Diplomacy: spent 23 years at McKinsey |
Pearson, who has worked with drug makers at New York-based McKinsey, was unavailable for comment last week. Valeant said he’s not granting interviews before clinical results come out on a pair of drug candidates or before the company’s fourth-quarter results, which are due Feb. 28.
He marks only the fourth chief executive that Valeant, formerly ICN Pharmaceuticals, has had in its 50 years. For decades, founder Milan Panic ruled the company with a tight hand up until 2002, when shareholders ousted him. He was replaced for a time by former PacifiCare Health Systems Inc. boss Robert O’Leary, who gave way to Tyson in 2005.
Drugs Still Key
Wall Street seems to like Pearson’s appointment. But analysts say two key drug trials are more crucial for Valeant.
“We view this change at the top as a clear positive for the company, but continue to expect near-term share price performance to be driven primarily by clinical trial data for Viramidine and retigabine,” said Andrew Swanson, a Citigroup analyst.
Hepatitis C drug Viramidine, which posted mixed results in earlier trials, is intended to replace ribavirin, Valeant’s fading flagship drug.
Retigabine is an epilepsy drug that Valeant acquired three years ago.
Swanson said he sees Valeant as a turnaround play.
“With a new CEO and low expectations for both earnings and the pipeline, we continue to like the Valeant risk/reward profile,” he said.
Tyson’s exit wasn’t a surprise, said Jeff Viksjo, an analyst with Morningstar Research.
“Given Valeant’s poor performance through the first nine months of 2007, with total sales up just 3% and its stock price at multiyear lows, we’re not surprised that the board of directors sought change,” he said in a report.
Pearson hasn’t run a company before. He’s spent the past 23 years with McKinsey, including as a director, head of the global pharmaceutical practice and as leader of the company’s mid-Atlantic region.
His lack of chief executive experience isn’t a concern, Viksjo said.
“We think his experience at McKinsey consulting on corporate turnarounds and acquisitions seems a perfect match for Valeant,” he said. “Unlike most specialty pharmaceutical firms, Valeant lacks focus, with operations spread around the globe in a number of different therapeutic areas.”
Valeant needs to focus “on specific disease states and geographic regions,” Viksjo said. That could make the company’s sales force more productive and boost profits, he said.
“With a new CEO in place, Valeant may be ready to tackle these challenges,” Viksjo said.
Pearson marks a change for Valeant, which recruited Tyson from GlaxoSmithKline PLC in 2002 as president and chief operating officer for what it called his “real-world pharmaceutical experience.”
Tyson spent a good part of his time restructuring Valeant in a move away from the Panic era.
He and O’Leary before him sold off far-flung foreign operations and focused Valeant on drugs for infectious diseases, neurology and dermatology.
Last year, Valeant sold off some drugs. Among them was Infergen, a hepatitis C drug, which sold for $91.5 million to Three Rivers Pharmaceuticals LLC of suburban Pittsburgh.
Valeant originally paid $113.5 million for Infergen in 2006, when it got the drug from InterMune Inc. of the Bay area.
Relying on Old Products
Valeant has continued to rely on products from the ICN era, such as dermatology drug Efudex and Bedoyecta, a vitamin supplement that’s popular in Mexico and was rolled out last year to target the growing U.S. Hispanic market.
But analysts have been critical of Valeant’s reliance on old standbys.
“They need a blockbuster, and there just isn’t anything I think can go in that (role),” said Robert Uhl, an analyst with Arlington, Va.-based Friedman, Billings, Ramsey & Co., in November. “They’ve been doing this strategy of trying to beat the old product line and get some new life out of it. They’ve been successful. But you can only beat an old horse so long before it dies.”
Late last year, Tyson said he was confident Valeant would reverse course.
“Despite the challenges that these issues present to future growth, our base business is remarkably stable and continues to generate strong cash flows,” he said. “As we focus on improving the business for better performance in the future, we will continue to invest appropriately in our pipeline.”
