Valeant’s new CEO a good choice for a dim future

By Robert Cyran

Valeant Pharmaceuticals’ new chief executive is a good choice for a dim future. Joseph Papa’s skill running a tight ship at Perrigo is sorely lacking at his new company. Valeant needs to keep staff, sell assets and pay down the company’s $30 billion of debt, all while coping with drug pricing pressures that have also hit the rest of the industry.

Papa is parachuting into a mess. He will start in early May, by which point Valeant intends to have filed its delayed audited 2015 financial statements. Few things have gone according to Valeant’s plans over the past year, however. Finding executives willing to sign the statements, for example, may be a challenge. Papa will at least have over a month to file them and cure the default.

That’s just the start. Valeant’s old boss, Mike Pearson, acquired mediocre assets at inflated prices and hiked drug prices. The company then slashed expenses but never fully integrated the grab bag of assets. The result was demoralized employees, crippling debt and a damaged reputation.

Asset sales will be an early step. Valuable brands such as Bausch & Lomb could do without being tarred by the Valeant association and may be worth more outside the company. The resulting smaller firm would be easier to manage and have some extra cash to pay down debt. This isn’t a panacea, however. If Valeant appears desperate, it may not fetch high enough prices on cash-generating assets to cut enough of its liabilities.

Papa also must improve the businesses the company keeps. That’s getting harder as insurers are pushing back on drug price increases. Perrigo on Monday warned these pressures will cause the company to miss analysts’ revenue and profit estimates.

That may initially give Valeant shareholders some pause. Papa had, for example, promised his previous investors a bright future. While the stock jumped fivefold under his decade-long reign, it has lost almost a third of its value since Papa and his assurances helped push away a hostile offer from rival Mylan late last year. Valeant, though, is a highly dysfunctional company where owners are likely to welcome even mediocre results and a modicum of adult supervision.

Published on April 25, 2016

(Image: REUTERS/Christinne Muschi)

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