LAVAL, Que. — The CEO of Valeant Pharmaceuticals is stepping down and the director of its board was asked to resign but refused to, saying allegations of improper conduct that resulted in misstated earnings are false.
The embattled Quebec drugmaker announced a shakeup Monday that will see J. Michael Pearson leave the company following a succession of setbacks that have hammered its reputation and sapped its stock value.
"It's been a privilege to lead Valeant for the past eight years,'' Pearson said a statement.
"While I regret the controversies that have adversely impacted our business over the past several months, I know that Valeant is a strong and resilient company, and I am committed to doing everything I can to ensure a smooth transition to new leadership.''
Price-gouging allegations, under investigation in U.S.
Once one of Canada's most valuable companies, Valeant has been embroiled in controversy for months.
It is facing allegations of gouging customers on drug prices, accusations it has denied. It is also under investigation by the U.S. Securities and Exchange Commission, U.S. Attorney's offices in Massachusetts and New York, as well as Congress, as part of their probes into price hikes for certain drugs.
Last month, Valeant announced it had to restate its financial results for 2014 and 2015 after discovering that about US$58 million of sales were recognized at the wrong time.
Board director blamed for misstated results
On Monday, the company pinned some of the blame for those misstated results on Howard Schiller, its former chief financial officer who sits as a board director. Valeant accused Schiller of "improper conduct'' in providing incorrect information to an audit and risk committee and the company's auditors, adding that it continues to assess its financial reporting and disclosure procedures.
"In addition, as part of this assessment of internal control over financial reporting, the company has determined that the tone at the top of the organization and the performance-based environment at the company, where challenging targets were set and achieving those targets was a key performance expectation, may have been contributing factors resulting in the company's improper revenue recognition,'' Valeant said.
Howard Schiller speaks during a hearing on prescription drug prices in Washington, D.C., U.S., on Thursday, Feb. 4, 2016. (Photo: Bloomberg via Getty Images)
Valeant also said an internal committee review concluded that the company's heavily performance-based focus may have impacted compensation decisions for some top managers and contributed to the company's improper recognition of revenues.
Valeant's board requested that Schiller tender his resignation as a director, but Schiller hasn't done so. It also placed an unnamed corporate controller on administrative leave.
"As a result of the fact that I did not engage in any improper conduct regarding this proposed restatement, I have respectfully declined the request from the company's board to resign from the board." — Howard Schiller
In a statement, Schiller denied Valeant's allegation that he provided incorrect information. He said the misstated sales figures were the result of "a careful and reasoned accounting decision'' by the corporate controller based on what she considered to be complete and accurate facts.
"As a result of the fact that I did not engage in any improper conduct regarding this proposed restatement, I have respectfully declined the request from the company's board to resign from the board,'' Schiller said.
"My hope at this point is to see the company recover from its challenges and for its employees and shareholders to once again prosper.''
Schiller filled in for Pearson during a two-month medical leave. He testified before Congress in February as a committee conducted a review of price gouging by drug companies.
Activist investor to join board
Pearson will leave after his successor is named, the company said.
Valeant said it hopes to submit its restated financial statements for 2015 to regulators by April 29.
The company also announced that New York-based activist investor Bill Ackman will join the company's board of directors. Ackman's Pershing Square Capital is a significant shareholder in Valeant (TSX:VRX). The activist investor also partnered with Valeant in a failed hostile bid to acquire Botox maker Allergan Inc.
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