(Adds details from sources on decision)
By Caroline Humer
Jan 6 (Reuters) - Valeant Pharmaceuticals International Inc (N:VRX)
VRX.TO on Wednesday named board member and former Chief
Financial Officer Howard Schiller as interim chief executive to
replace Michael Pearson (L:PSON), who has been hospitalized with severe
pneumonia since late December.
"As the timing of (Pearson's) expected return is uncertain,
he will be on a medical leave of absence until further notice,"
Valeant said in a statement.
Investors appeared to like the board's decision to have
Schiller, Pearson's long-time lieutenant, run the company for
now.
During most of the years Pearson led the Laval, Quebec-based
company, Schiller worked alongside him. The two employed a rapid
growth strategy based on a constant stream of acquisitions and
drug price increases.
One large investor who knows Schiller said he has top
financial credentials coupled with a more personable manner than
Pearson, something that could play well with regulators,
lawmakers and investors as the embattled company seeks to repair
its tattered image.
Last year Valeant's surging growth stalled amid questions
about its pricing and accounting practices, sending its share
price tumbling 73 percent from its $263 record in August.
"Schiller's return shows that Valeant has no intention of
changing the borrow, buy, and boost prices strategy he helped
devise," said Erik Gordon, a professor at the University of
Michigan's Ross School of Business.
Schiller left as CFO last year, saying he wanted to "do some
things on my own," but he remained on the board. He was part of
an investor conference call last fall after Valeant disclosed
its tight relationship with Philidor Rx Services. The pharmacy
had used aggressive tactics to boost sales of Valeant
dermatology products before the drugmaker cut ties.
Valeant is also under investigation by government
prosecutors in New York and Massachusetts and is the target of a
congressional inquiry.
The large investor said Schiller is the ideal choice to take
the reins now because he knows its dealmaking intimately and is
not the public face of its troubles.
"Sometimes not having the guy who was in the thick of the
problems at the helm to lift the company up again is a good
thing," the investor said.
Wall Street analysts said Schiller could help keep Valeant
on track in the near term.
Bill Ackman, one of Valeant's largest and most vocal
shareholders, with an 8.5 percent stake at his Pershing Square (N:SQ)
Capital Management fund, expressed his support for Schiller in a
statement to CNBC. Other large shareholders include hedge funds
ValueAct Capital Management and Paulson & Co.
Schiller was Valeant's CFO from December 2011 to June 2015
and has been on the board since 2012. He previously worked in
investment banking at Goldman Sachs (N:GS) GS.N for 24 years,
experience that helped support a run of acquisitions, including
Salix Pharmaceuticals.
The board agreed on Schiller during a call on Tuesday, after
at least one large investor had urged it to abandon a quickly
pulled together three-person executive committee, a person
familiar with the matter said.
A different source familiar with the situation said that the
board had talked to many investors about interim replacements as
it became clear that Pearson would not return immediately.
Robert Ingram, a former chief executive of drug maker
GlaxoSmithKline and a Valeant director since December 2010, will
be chairman, the company said. This splits the roles of CEO and
chairman for now, which investors often prefer.
General Counsel Robert Chai-Onn, Executive Vice President
Ari Kellen and Chief Financial Officer Robert Rosiello took over
for 56-year old Pearson when he was hospitalized. The company
has not provided further information about his medical history
or illness.
One Wall Street analyst said that shareholders are still
awaiting Pearson's return. "Investors like Schiller and think he
is capable of executing on Valeant's strategy, but they still
prefer Mike Pearson overall and hope that he comes back," said
Evercore ISI analyst Umer Raffat.
Investors, many of whom are hoping for a recovery in the
shares back to at least $200, are worried that Pearson will not
return or that his illness could be used as an opportunity to
push him out, Raffat said.
Dr. Debra Spicehandler, an infectious disease specialist at
Northern Westchester Hospital in Mount Kisco, New York, said it
would be unusual for a patient to remain in the hospital more
than five or six days for simple pneumonia alone.
Patients staying much longer could need treatment for
bloodstream or hospital-acquired infections and have to remain
on ventilators to assist their breathing. Spicehandler, who is
not treating Pearson, said they might also have experienced
serious consequences of pneumonia, such as a heart attack or
heart failure.
Valeant shares ended trading on Wednesday up 1.5 percent at
$102.40 on the New York Stock Exchange, after rising as much as
5 percent earlier in the day, while most other pharmaceutical
companies' stocks fell.
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BREAKINGVIEWS-Valeant's temporary boss has his work cut out
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