Valeant Pharmaceuticals International’s decision to downsize its Aliso Viejo offices comes at a price.
The drug maker said in its annual report with the Securities and Exchange Commission that it has exercised an option to end a lease for its corporate headquarters, effective December 2011.
Getting out of its lease won’t be cheap for Valeant,the drug maker said it recorded a restructuring charge related to breaking the lease of $3.8 million in 2008.
Valeant said the charge is made up of a $3.2 million lease termination penalty, payable in October 2011, and $600,000 for certain unspecified fixed assets.
Valeant executives were unavailable for comment. Spokeswoman Laurie Little said, “We are trying to get out of this building as it is too large and costly for the company size we have now.”
Valeant has actively looked to cut expenses in recent years and rework itself into a smaller drug maker with a narrower geographic and product focus. Much of its efforts have come under Chief Executive J. Michael Pearson, a turnaround specialist who joined the company in 2008 from McKinsey & Co.
Last year, Valeant sold its European and Latin American businesses, netting nearly $400 million when it sold its European division to Swedish drug maker Meda AB.
Pearson has said he wanted Valeant to start 2009 as a “simplified, growing company.”
Wall Street seems to like the moves so far with Valeant’s stock up 40% in the past year on a recent market value of about $1.5 billion.
Moving Plans
Valeant, which primarily makes drugs to treat neurological and skin diseases, will be in two floors of its four-story building shortly, Little said. Valeant could stay there if it can’t find a company to take the whole building.
“Our preference is to move to another location in the local area if we can find a tenant for the entire building,” Little said. “But at the very minimum, we are looking to lease two floors and consolidate our employees onto the other two floors.”
There’s been a “significant amount of interest” in Valeant’s building, but a tenant hasn’t been found yet, said Greg Ficke, a broker in the Irvine office of Cushman & Wakefield Inc., which is marketing the building for Valeant.
Valeant signed a 10-year lease for the 109,948-square-foot building at One Enterprise Drive overlooking the San Joaquin Hills (73) Toll Road in late 2006. The office is the former headquarters of Fluor Corp., an engineering and construction company that moved its headquarters to Irving, Texas, in 2006.
At the time the lease was signed, Valeant didn’t disclose how much it was paying. Office lease rates in the South County submarket averaged about $2.60 per square foot back then.
The drug maker put the building up for sublease in November, asking for monthly rents of $2.35 per square foot. Valeant now is asking for $2.15 per square foot, according to real estate data provider CoStar Group Inc.
Valeant’s building is owned by San Francisco-based RREEF Funds LLC, a unit of Germany’s Deutsche Bank AG. Fluor sold the building to RREEF for a reported $27.5 million.
Restructuring
Valeant has about 175 employees at its headquarters, down from about 500 workers three years ago. Little said that number would be down to 150 at midyear.
Timothy Tyson, Valeant’s former chief executive and Pearson’s predecessor, started his own restructuring process for Valeant when he took the company’s helm in 2005.
On the real estate front, Tyson oversaw the move from the company’s longtime headquarters in Costa Mesa and subsequent $38 million sale of the sober black office building on Hyland Avenue facing the San Diego (I-405) Freeway.
Boston-based investment adviser AEW Capital Management LP bought that complex.
That building, now called 3300 Hyland, got a $15 million facelift last year.
That move partially was seen as an attempt to distance Valeant from its days as ICN Pharmaceuticals Inc. under autocratic founder and former Chief Executive Milan Panic.
The Costa Mesa complex was identified closely with Panic, who was ousted by dissident shareholders in 2002.
Tyson came under fire in late 2007 for losses and what some analysts saw as a lack of direction, and Pearson replaced him a few months later and started on his own version of restructuring Valeant, drastically slimming down operations and putting more emphasis on acquiring companies rather than come up with drugs on its own.
