The term "Happy New Year!" is primarily an optimistic one with wishes for health, happiness and success in the coming twelve months, but they take on a greater significance when one has been through (and survived!) a particularly rocky and challenging channel of raging whitewater, sliding out to still, calmer waters at the other end, "Deliverance"-style.
Thus it has been for J. Michael Pearson of Laval-based Valeant Pharmaceuticals, who had a turbulent 2015, to say the least. However, and sadly, while he did survive the ups-and-downs of his 2015, in a business sense, it now appears that he is in a battle for his very survival with the news of his indefinite medical leave. It has been reported that he is still hospitalised with an aggressive pneumonia, and no indication of his return has been implied to date.
The six month journey from the highs of Valeant's very own Everest - record highs for stock prices this past summer - all the way down to the lows of the latter part of the year - price gouging accusations, apparent alignment in business model with Martin Shkreli (seen by many as the Devil himself), subpoenas to appear before Congress, and the revelation of their previously hidden relationship with mail-order US pharmacy Philidor - was clearly an extremely challenging one, and one that took a serious toll on "Big Mike".
The Pearson name has become synonymous with that of Valeant and mid-last year it would have seemed inconceivable that a three-man "Office of the CEO" executive committee would be in place to run the company a mere six months later, and worse, today, that a new interim CEO has been put in place to take over from that executive committee. While it appeared that investors took some comfort that it was trusted former Valeant CFO Howie Schiller (along with Robert Ingram taking over as Chairman of the Board) who was returning to take the helm, not everyone kept smiling.
One of the most prominent investors involved in Valeant's acquire-and-hike (or acquire-and-slash) approach - no, wait, the most prominent investor in the entire story - Bill Ackman, no less, didn't seem that comforted. He has been one of Pearson's and Valeant's most staunchest allies, and it was Ackman who heavily co-drove the move for Valeant to swallow up Allergan in 2014, and even after that failed he remained firmly on board.
In fact, even while criticising them for having a "public relations problem", he increased his stake in Valeant! So the recent news that Ackman sold off a swathe of Valeant stock on the last trading day of 2015 seemed a touch ominous. The New Year's Eve date could be seen as simply a tough decision put off until the very last moment possible, if one is kind, or rather it was a move to use the hullabaloo associated with the 31st of January date as a smokescreen and distraction, if one is cynical.
Ackman's Pershing Square sold off some 5 million shares, reducing their stake in Valeant from 9.9% down to 8.5%, which is hardly deserting the sinking ship, but still. Ackman weathered all the other storms and stood firmly behind Valeant, or maybe more fully behind Pearson, during what was one tumultuous 2015. But perhaps the fact that he is not as confident about a Valeant led by someone other than Pearson caused him to moderate his exposure a little. Anyway, the story goes that he sold off to help generate a tax loss for investors in his on-shore holdings, and it seems he is sticking to that story - for now. Pershing Square and its investors lost billions on Valeant by year's end, so Ackman probably had to do something.
It is unquestionable that Pearson has done big things for Valeant and most certainly raised their profile (albeit not always for the right reasons) along with their stock, but as Martin Shkreli found out, it's simply not true that any publicity should be considered good publicity. "Talk about me - good or bad, it doesn't matter - as long as you are talking about me", as a certain well-known senior scientist used to say to me from time to time. While that might work for a senior academic scientist or the CSO of a private biotech company, it works less well for the boss of an extremely public company, with a board, investors, the public and even Congress all breathing down your neck!
Adding some salt into his current wounds comes the news that the particularities of Pearson's contract mean that if he walks away for medical reasons, he will lose his golden parachute. That's close to $10M, right there! On top of that it is estimated that such early departure, as opposed to sticking around long enough to see the stock recover and rebound by around 2020, could cost him as much as hundreds of millions of dollars in stock-as-compensation when they vest. There's no doubt that it is in his best interest to return to Valeant, pronto, before someone else starts steering the ship in directions new; directions which may send stock soaring once more, and it is very hard to remove even an interim head coach or quarterhack, when they are on a brash winning streak.
Well, it is a new year, and if we take our business hats off for a moment, I think everyone would agree that we can't wait to hear that Big Mike is out of hospital, back home, and on the mend. When he is fully recovered, and if he returns to the helm, he has another very challenging year ahead. One major hill he will have to climb is repairing the damage to the company's reputation that occurred in the latter half of 2015; he will also have to repair the damage to the share price (from $260 in high summer down to $101) that also occurred in the latter half of 2015.
He is probably more than capable of correcting the latter - he's done it before - but whether he can impact the former (and some would say that requires a new face at the helm) remains to be seen. But we wish him well and we all will be watching his 2016 very closely indeed!
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