Valeant Pharmaceuticals's (VRX) much-needed management reshuffle is beginning to take shape with Monday's announcement that Joseph Papa will be replacing Michael Pearson as chairman and CEO, and shareholders seem to love it.
Shares of Valeant -- whose subsidiaries include eyecare giant Bausch & Lomb and skincare maker CeraVe -- jumped 4% in opening trading Monday after the company confirmed last week's rumors that Papa, who had been the CEO of Big Pharma rival Perrigo (PRGO) since 2006, will be taking the helm of Valeant in early May.
"Valeant has world-class franchises, important treatments for patients across numerous therapeutic areas and a very talented and dynamic workforce, and I am confident that the company has a bright future ahead," Papa said in statement Monday. He also noted Valeant will refocus its efforts on "operating with integrity" and will be providing customers with "safe and affordable products."
Shareholders appear hopeful that Papa's new direction will help the struggling Canadian drugmaker reverse a persistent decline in share prices over the past seven months.
Valeant shares are down 65% so far in 2016, as Congress and the SEC continue to probe the company's bookkeeping and drug-pricing practices. The company's departing CEO, Michael Pearson, is scheduled to testify in front of the Senate Special Committee on Aging on Wednesday.
Allegations of "gouging" patients through "predatory pricing" have gathered significant attention in the media over the past several months, with such charges most notably appearing in the rhetoric of Democratic presidential candidate Hillary Clinton's campaign.
Valeant has also so far admitted to at least $58 million of improperly booked revenue tied to its former partnership with mail-order pharmacy Philidor, which has led to the delay of its annual 10-K filing with the SEC. The delay has led to an ongoing standoff with creditors over violations of Valeant's debt covenants.
Shareholders are hoping that the appointment of the new CEO will draw a line under these problems and that he will bring new strategies to engineer a sustainable recovery. Papa's track record means their hopes have high chances of being fulfilled.
He developed a shrewd eye for mergers and acquisitions in the Big Pharma scene throughout his tenure at Perrigo -- especially with the $6.7 billion acquisition of Irish rival Elan in 2013 -- which has helped drive his former company's shares up roughly 900% since 2006, BMO Capital analyst Alex Arfaei said in a Friday investment note.
Papa, who helped grow Perrigo into a pharmaceutical giant with a more than $17 billion market cap, is also known for his defensive plays on the M&A front, most notably in helping to dodge a $26 billion hostile takeover bid by Mylan last November.
He will be replaced at the helm of Dublin-based drugmaker Perrigo by John Hendrickson, who has been the company's president since October, after serving as vice president of Perrigo's global supply chain from 2006-2015.
"He has made exceptional contributions to the business during his 27 year tenure, including leading our U.S. Consumer Healthcare business, and we are confident that he has the industry expertise and the operational track record to continue to drive growth," Perrigo chairman Laurie Brlas said in a statement Monday.
Valeant's management reshuffle has also included the addition of billionaire activist Bill Ackman -- whose hedge fund, Pershing Square, holds a 9% stake in Valeant. Stephen Fraidin, Pershing's vice chairman, was also named to the board of directors last month.