Valeant Pharmaceuticals International Inc. VRX -3.62 % was too aggressive in dramatically raising the prices of some of its drugs, the company’s outgoing chief executive told a Senate committee Wednesday, while its newest board member promised swift changes.
Michael Pearson, who oversaw the rise and fall of Valeant, told the committee that Valeant’s strategy of buying and increasing prices on many drugs was a mistake. The testimony, under sharp questioning, highlighted Valeant’s stark fall from Wall Street darling to Washington punching bag, and showed how much it has at stake.
Its stock isdown more than 86% from its high last August, closing at $ 34.92 on Wednesday. Shares were up about 2.5% in after-hours trading.
Drug-price increases have overshadowed the company’s broader work, and “we therefore need to work to regain the confidence of Congress, the public, doctors and patients,” Mr. Pearson told the Senate Special Committee on Aging.
That job won’t fall to Mr. Pearson, who is on his way out as CEO. His successor, former Perrigo Co. chief Joseph Papa, was announced by Valeant this week and is set to start work Monday, director and major shareholder William Ackman told the committee.
Valeant disclosed Mr. Papa’s pay package Wednesday evening. He will receive a salary of $ 1.5 million but stands to make far more if Valeant’s beaten-down stock price recovers, thanks to about 373,000 restricted shares that vest if Valeant’s stock hits certain thresholds.
“Actions speak louder than words,” Mr. Ackman said. “You can expect from us, within weeks and hopefully sooner, a response to where we are going to price these drugs and it will be meaningfully lower.”
Mr. Ackman, whose Pershing Square Capital Management hedge-fund firm has lost billions on its 9% Valeant stake, said he has spent most of his four weeks on the board “making sure the company didn’t go bankrupt.” Valeant got a waiver from bank lenders, hired a new chief executive, and has been preparing its long-overdue annual financial statement, which he said would be filed publicly by Friday. Mr. Ackman also said more board changes are expected.
Valeant’s former chief financial officer, Howard Schiller, also testified at the three-hour hearing. The three men appeared in gray suits, with Mr. Pearson looking slimmer and weary after a lengthy bout with severe pneumonia.
The Senate committee has been investigating price dramatic increases imposed by Valeant and other firms, including those for cardiac-care drugs Isuprel and Nitropress. The prices of 16 Valeant drugs have risen this year, Sen. Claire McCaskill (D., Mo.) said. Under questioning, Mr. Pearson was unable to name a U.S. drug that Valeant had acquired and not raised the price for it.
Valeant is under investigation by the Securities and Exchange Commission and other regulators. It has faced concerns over its now-severed ties to a mail-order pharmacy that, The Wall Street Journal reported, used aggressive tactics to get insurers and pharmacy-benefit managers to pay reimbursements for Valeant’s drugs over cheaper alternatives.
The company plans to restate past earnings because of problems with booking $ 58 million in revenue. It also has said the “tone at the top” and pressure on executives to hit performance targets may have contributed to its problems.
Valeant’s board last month laid much of the blame for the accounting errors at Mr. Schiller’s feet, and sought his resignation from the board. Mr. Schiller declined the request, and has said he did nothing improper.
Mr. Pearson’s leadership and strategy of serial acquisitions of other drug companies sent Valeant’s stock soaring until last year, when it was hammered by questions over its drug pricing, accounting and business practices.
Mr. Pearson said, “It was a mistake to pursue, and in hindsight I regret pursuing” acquisitions where the economic rationale for the deal relied heavily on price increases. Valeant acquired Isuprel and Nitropress in 2015 and quickly raised their prices by 525% and 212%, respectively.
Mr. Pearson also said he regrets that some of his public comments have left the impression that he was concerned only about Valeant’s shareholders and failed to consider the impact of its decisions on patients. “That is absolutely not the case,” he said.
He said he thinks Valeant had been unfairly criticized in some respects. He said the company has spent more than $ 1 billion on programs to help patients afford their drugs. He also said Valeant had been offering hospitals with rebates of up to 30% on Isuprel and Nitropress—though senators said they had been unable to find a single hospital that had qualified for the discounts.
Write to Michael Rapoport at [email protected]