Valeant Pharmaceuticals' (VRX) shares jumped in midday trading Friday after reports surfaced that the beleaguered drugmaker has courted Joseph Papa, the CEO of Irish competitor Perrigo (PRGO), to replace Michael Pearson at the helm of Valeant.
And it appears investors have good reason to be bullish, some analysts say.
One reason the news should restore shareholder confidence is that Papa has overseen a roughly 900% share-price increase at Perrigo since he became CEO in 2006, and his ability to shrewdly make acquisitions will be a major benefit for Valeant, whose shares are down 65% this year alone, BMO Capital analyst Alex Arfaei said in a Friday investment note.
"Moreover, he has led Perrigo's through a number of acquisitions, including Elan in 2013, which was basically a tax inversion," Arfaei said. "Mr. Papa's focus on buying consumer and over-the-counter businesses (e.g., Omega, GSK OTC assets) is well aligned with Valeant's strategy and key business units."
And the news comes just as Pearson, the departing CEO at Valeant, prepares to testify before the Senate Special Committee on Aging next week surrounded by allegations of dubious drug-pricing policies at Valeant. The charges have been most prominently highlighted by Democratic presidential candidate Hillary Clinton, who has said Valeant is "gouging" patients through "predatory pricing."
And chatter surrounding the appointment of Papa -- who also served as chief operating officer of DuPont (DD) in 2001 -- is also a potential catalyst for a Valeant turnaround because it may signal that much of Valeant's accounting woes are settled, and that "challenges are not insurmountable," analysts with Morgan Stanley said in a Friday report.
"We view the news as positive for VRX shares; it is encouraging that a highly experienced CEO of an $18.4 billion market cap company appears interested in being CEO of $11.4 billion market cap Valeant," the analysts said.
Meanwhile, Bill Ackman -- the billionaire activist whose hedge fund, Pershing Square, maintains a 9% stake in Valeant -- appears to share the view that a new CEO is an essential next step for Valeant to begin staging a meaningful share-price reversal.
"We expect fairly rapid recovery of the stock price on the basis of restoring confidence in the business," Ackman said on Pershing Square investor call this month, emaphasizing "very interesting and good segments for a CEO to step in." (Ackman, along with Pershing's vice-chairman, Stephen Fraidin, also recently obtained seats on Valeant's board.)
Valeant shares have been in the doldrums this year largely because the drugmaker has scrambled to timely file its annual 10-K statement with the SEC amid Congressional and SEC probes into it's accounting and drug pricing practices.
The company has so far acknowledged about $58 million in improperly booked revenue tied to its former partnership with mail-order pharmacy Philidor. And while Valeant has said there are likely no more skeletons in the closet, and that it will file its 10-K on or before April 29, the drugmaker still risks entering a technical default if it is not able to reach consensus with creditors in ironing out breached covenants on its bonds and loans.
Most recently, after doling out a host of concessions to holders of its roughly $11 billion in loans, Valeant managed to push its 10-K filing deadline to May 31. But bondholders quickly reacted with the filing of a default notice less than a week later.
"Overall, if true, this should be positive news for VRX investors," Arfaei said in his note to investors. "We continue to believe that VRX could be on the verge of a significant inflection point; and we look forward to reviewing the company's 10-K, which we hope will be filed on time by April 29."
