Large investors holding stock in Valeant Pharmaceuticals International Inc are split over whether to support the embattled drug company’s chief executive or to advocate for new leadership, as the company struggles to recover from a stock plunge sparked by allegations of faulty accounting.
Interviews with fund managers invested in the company suggest that while Valeant CEO Michael Pearson still enjoys solid support from some key investors, the backing may be waning, with other investors saying they think new leadership is needed to stabilize the company.
Still, shareholders worry that if Pearson leaves, the stock will fall further, having already lost more than half of its value since coming under siege this fall. Scrutiny over pricing policies from U.S. politicians, federal investigations into its operations and a short-seller note aimed at its accounting practices have sent shares into a tailspin.
“I think the jury is still out as far as the big investors and his future goes,” said one shareholder, who like others interviewed for this story, requested anonymity. “There are people who would like to see a fresh start.”
Investor criticism of the former McKinsey consultant, who transformed Valeant from a small drug company into a behemoth through acquisitions, included questioning of both his overall leadership and his handling of the present crisis, especially with regard to investor relations.
In an email to Pearson reported by the Wall Street Journal on Thursday, hedge fund billionaire Bill Ackman, Valeant’s third largest shareholder, expressed support for Pearson, even while questioning some aspects of his handling of the crisis.
“While I have strong views on Valeant’s communication strategy and would have taken a different approach,” Ackman wrote, “you and the board should not interpret this as a negative reflection on my view of you as the CEO of the company.”
Another large Valeant shareholder told Reuters that Pearson should stay, and that the stock plunge has been exaggerated, given that the accounting questions have been raised about only a small number of Valeant drugs, which together are responsible for about 10 percent of the company’s revenue. Valeant has denied accusations of accounting discrepancies.
But the investor acknowledged that Pearson’s future is far from clear.
“I think the company is more valuable with Mike (Pearson) as CEO,” the investor said. “There are those who don’t.”
Several funds in the past few weeks have disclosed that they sold off their shares of Valeant, including respected value investor Wally Weitz and hedge fund Jana Partners, though none expressed a loss of confidence in Pearson.
As for large institutional investors invested in the stock, the lingering concern is whether Pearson can get his arms around the damage and contain it.
One shareholder said that Pearson should have spent more money building up the investor relations arm of the company, which could have helped him better manage the “just-in-case scenario that just hit him.”
A spokeswoman for Valeant said Friday that Pearson had the “full confidence” of the board of directors. (Editing by Sue Horton and Mary Milliken)