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(Adds date of new appointments to first paragraph, Valeant declining to comment)
By Svea Herbst-Bayliss and Carl O'Donnell
NEW YORK, March 8 (Reuters) - Embattled drug company Valeant Pharmaceuticals International Inc, whose stock price has tumbled 38 percent this year, will appoint three new board members as soon as Wednesday, people familiar with the matter said on Tuesday.
The drug maker will award one of the seats to Pershing Square Capital Management, one of its biggest investors, two people familiar with the matter said.
Stephen Fraidin, a veteran Wall Street lawyer who is vice chairman at William Ackman's Pershing Square, is expected to join Valeant's 12-member board, the sources said.
The company is also expected to give a seat to Fredric Eshelman, a long-time pharmaceutical industry executive, as well as one other person, adding a total of three new directors, the sources said. Valeant declined to comment.
The Wall Street Journal first reported that Valeant was considering adding board members.
The move comes after a particularly rocky few weeks in which Valeant said it would restate its earnings, its chief executive officer returned from a lengthy sick leave, it postponed a scheduled earnings statement and acknowledged that the country's top securities regulator is investigating the company.
It also marks a dramatic shift for Pershing Square, which made the investment as a rare passive bet, saying a year ago that it believed in Valeant's management and policy of favoring acquisitions over in-house research.
By putting a representative on the board, the $12 billion New York-based hedge fund, which owns 16.5 million shares, is demanding a louder voice in running the company. It has taken a similar approach with some of its best-performing investments, including Canadian Pacific Railway Ltd.
The board already has two investor representatives; Mason Morfit and Robert Hale. They work for San Francisco-based hedge fund ValueAct, which owns 14.9 million shares and ranks as the fourth-biggest owner after Pershing Square.
Fraidin joined Pershing Square in early 2015, around the time Ackman began investing in Valeant. A year earlier Ackman, with advice from Fraidin's law firm, created an unusual structure in which he bought shares in drug firm Allergan Plc but was working with Valeant, whose shares he owned, in a bid to buy Allergan.
While no merger ensued, Allergan's gains in 2014 helped deliver one of Ackman's most profitable years ever - Pershing Square Holdings gained 40 percent. Last year and this year Valeant has weighed on returns, due to an attack by short sellers who questioned the firm's sales and accounting practices.
Valeant is a favorite stock among hedge funds, with John Paulson's Paulson & Co, Brahman Capital and Viking Global Investors ranking as other big investors. (Reporting by Svea Herbst-Bayliss and Carl O'Donnell; Editing by Dan Grebler and Lisa Shumaker)