5 Min Read
(Reuters) - Former Perrigo Co Plc (PRGO.N) head Joseph Papa was named Chief Executive Officer at Valeant Pharmaceuticals International (VRX.TO) on Monday, a role in which investors said he should focus on returning the company to growth.
Papa will replace CEO Michael Pearson, whose years of frenzied dealmaking fueled double-digit profit increases at Valeant until scrutiny of its controversial relationship with a specialty pharmacy and history of sharp drug price increases hit its shares and sales last fall.
Shares of Laval, Quebec-based Valeant rose on Monday after it announced the high-profile hire before losing about 2.2 percent in New York trading to close at $35.16.
Shares are far from their August 2015 high of $263.70, falling to the current level earlier this year after Valeant said it would restate earnings and delay filing its 2015 financial report, opening the door to possible default on its $30 billion in debt.
Papa, 60, takes the reigns after a decade at Perrigo and previous positions at drug distributor Cardinal Health (CAH.N), generic drugmaker Watson Pharmaceuticals which is now Allergan Inc (AGN.N), and pharmaceutical giant Novartis AG (NOVN.S).
Last year, he led Dublin, Ireland-based Perrigo to rebuff a $26 billion takeover by Mylan NV (MYL.O) and spent six months meeting with investors, urging them not to sell to Mylan. His meetings and a public letter campaign convinced shareholders that Perrigo should be a standalone company.
Papa's track record helped his case, but recent months have been challenging and Perrigo said on Monday that its earnings and sales will fall short this year, disappointing shareholders.
The shortfall is in part due to weak sales in Europe and its Omega Pharma acquisition, both part of Papa's strategy, said Wells Fargo analyst David Maris, who downgraded the stock to market perform.
Papa does not have significant experience in branded prescription drugs, Valeant's area of focus, Maris said. Perrigo sells over-the-counter products, which are a small part of Valeant's business.
"Perrigo has limited international business; Valeant has a lot," said Maris, who rates the stock "underperform." "Perrigo has acquired a lot of products and divested very few; Valeant’s future probably has a lot of divestitures."
Reuters reported earlier this month that Valeant had brought in investment banks to review its options amid buyout firms and other companies' interest in a number of its businesses.
Patrick Kaser, portfolio manager at Brandywine Global, which owns more than 2.3 million Valeant shares, said Papa's experience selling over-the-counter healthcare products would be an asset for the company's skincare and Bausch and Lomb eyecare lines.
Kaser said one early priority should be repairing Valeant’s relationship with health insurance companies, which are steering patients away from the company's products. “Job One is slowing and stemming the damage,” he said.
The news of the appointment, first reported by Reuters, pushed shares of Perrigo down more than 15 percent. The company replaced Papa with President John Hendrickson, a 27-year Perrigo veteran, and named director Laurie Brlas as chairman.
Perrigo reported preliminary first-quarter earnings of $1.71 to $1.77 per share and said it expected a full-year profit of $8.20 to $8.60 per share, excluding special items. Both are below analysts' expectations, according to Thomson Reuters I/B/E/S.
Valeant was looking for a replacement for Pearson for more than a month. He suddenly left in December on a medical leave for pneumonia and returned to Valeant at the end of February. Papa will also be chairman, a role Pearson had lost after his return.
The changes have come after activist investor Bill Ackman, who has lost billions of dollars on the company, joined its board and creditors began to increase pressure. Several groups of noteholders have issued notices of default, requiring Valeant to file its 2015 financial report as soon as April 29.
Reporting by Carl O'Donnell, Greg Roumeliotis and Caroline Humer in New York; Additional reporting by Rod Nickel in Winnapeg, Manitoba; Editing by Lisa Von Ahn, Bernard Orr