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Valeant finalizing contract with Perrigo’s Joseph Papa as next CEO

April 25, 2016
Life sciences

Valeant Pharmaceuticals International Inc. is finalizing a contract to name Perrigo Co. Chief Executive Joseph Papa as its next CEO, hoping a fresh face and an experienced pharmaceutical-industry boss will calm nervous investors.

Valeant has reached a contract deal with Mr. Papa and had aimed to announce as soon as next week that he would succeed longtime chief Michael Pearson, according to people familiar with the matter.

But the appointment has hit a sticking point as the Perrigo board hasn’t said whether it would allow Mr. Papa to void a noncompete clause in his contract, the people said. The Perrigo board had a call for several hours on Thursday and didn’t reach a decision, the people said.

Valeant considers the overlap between Perrigo and Valeant to be limited and the companies are rarely considered direct competitors, the people said.

Mr. Pearson, 56 years old and recently recovered from severe pneumonia, lost the support of the company’s board, which last month announced a search for his replacement and “identified concerns” about the “tone” of a company that has grown rapidly through acquisitions and ambitious sales targets.

A planned conference call for some investors featuring Mr. Papa, organized by Morgan Stanley and scheduled to take place Friday morning, was canceled after The Wall Street Journal reported the possible move late Thursday.

If the hiring occurs, the appointment of Mr. Papa, 61 years old, would mark a new chapter for the drug company, which has lost some $80 billion in market value since last summer on a storm of political scrutiny and the disclosure of errors in its financial reporting.

Mr. Papa ​has ​broad industry experience with pharmaceutical companies such as Perrigo and wholesalers such as Cardinal Health Inc., skills the Valeant board is seeking to help mend fractured relations with payers. Insurers and pharmacy-benefit managers have pulled back on Valeant drugs after steep price increases and revelations about Valeant’s ties to a mail-order pharmacy that pushed its expensive drugs.

The search for a new CEO was led by a small group of independent Valeant directors including investor William Ackman and Chairman Robert Ingram, the people said. The board—which includes Mr. Ackman and three other new directors who have joined since early March—is also considering a number of steps aimed at restoring confidence that the company can manage its heavy debts.

These options include the potential sale of a variety of drug products and assets, according to people ​familiar​with the matter. ​

Mr. Papa’s planned move comes shortly before Perrigo’s annual meeting on Tuesday, putting the company under pressure to name an interim or permanent successor quickly, although Valeant has agreed to let him stay through that meeting to help the transition, one person said.

Mr. Papa ​has spent almost a decade at the helm of Perrigo, which makes generic drugs as well as store-brand painkillers, cold medicines and other over-the-counter products for retailers like Walgreens Boots Alliance Inc.

In 2013, he led the company, then based in Michigan, through a merger with an Irish rival that moved its legal home to Ireland in a deal known as an “inversion,” which can cut a company’s taxes. Valeant cut its own taxes through a similar deal in 2010.

Last year, Mr. Papa beat back a hostile takeover bid from Mylan NV, spearheading a campaign that ultimately persuaded shareholders to reject Mylan’s bid—a rare feat.

Since then, though, Perrigo has reported disappointing quarterly results and cut its 2016 outlook. Its stock is down 35% over the past year, giving it a market value of $18.4 billion. In the time since Mr. Papa became CEO, the stock gained nearly eightfold.

Despite Perrigo’s recent stumbles, Mr. Papa is well-known among investors, more so since the highly public Mylan campaign, in which he met extensively with shareholders to lobby for their support.

From his time at Perrigo, Mr. Papa knows generic drugs, an important component of Valeant’s portfolio. And he is familiar with Walgreens, a major Perrigo client that Valeant is counting on to help fill prescriptions and gain reimbursement for the drug company’s skin medicines.

His pharmaceutical-industry experience and health-care industry relationships generally could be valuable as Valeant works to stabilize its business and restore relationships with wholesalers like Cardinal and the various companies that pay for drugs.

Some health insurers and drug-benefit managers have dropped coverage for certain Valeant drugs after revelations that a mail-order pharmacy with close ties to the company used aggressive tactics to secure reimbursement of high-price Valeant products.

The revelations triggered a board investigation that led to a financial restatement and a delayed filing of its annual report, putting it in danger of violating some of its debt terms. Valeant is also under investigation by the Securities and Exchange Commission, and the Justice Department is probing the company’s drug-pricing practices.

By Jonathan D. Rockoff, David Benoit and Liz Hoffman

Source: Wall Street Journal

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