Troubled Valeant Pharmaceuticals will have a new chairman and CEO next month — Joseph Papa — even as outgoing leader, J. Michael Pearson, is scheduled to testify about the “repercussions” of its business model on patients and the health care system as a whole before the Senate Special Committee on Aging tomorrow. Papa has led Dublin-based Perrigo since 2006.
“Papa is an industry veteran with experience in the drug-wholesaler sector at Cardinal Health Inc. He led Perrigo for more than a decade and steered it through the successful rebuff of a hostile takeover attempt by Mylan NV last year,” write the Wall Street Journal’s Anne Steele, Jacquie McNish and David Benoit in confirming the appointment they first floated in a story Friday.
“His experience as a drug-industry executive and personality drew the attention of Valeant, which had wanted a candidate who came with existing relationships to the customers.”
But Benoit points out in a “Market Talk” sidebar that giving both the CEO and chairman titles to Papa may raise some eyebrows” since Valeant “only last month stripped departing CEO Michael Pearson of the chairman title and gave it to Robert Ingram.”
For his part, in the release announcing the appointment, Ingram stated that Papa “has a strong shareholder orientation, a background in science, and an unmatched track record of accomplishments, highlighted by his ability to lead companies through times of transition. … In addition, fostering an ethical culture and creating opportunities for professional development have always been high priorities….”
Following the WSJ’s report Friday, Gimme Credit analyst Vicki Bryan said Papa “could be just what Valeant needed,” Katie Thomas writes in the New York Times. “Papa’s management style evokes a dramatically more positive tone/culture versus the toxic ‘do it or else’ environment revealed as so pervasive at Valeant,” Bryan wrote in a note.
The longtime critic of Valeant, as the Financial Post’s Damon van der Linde points out, also said that Papa “seems to have importantly relevant experience running several major pharmacy enterprises.” Indeed, before taking over at Perrigo in 2006, the 60-year-old Papa was a senior executive at four other pharmacy companies and 2012 Barron’s included him in its 2012 list of “World’s Best 30 CEOs.”
Pembroke Consulting president Adam J. Fein says “Papa may help Valeant re-establish trust with insurers and pharmacy-benefit managers, which is sorely needed,” the NYT’s Thomas reports. “Top pharmacy-benefit managers, including Express Scripts and CVS/Caremark, had recently said they were removing many of Valeant’s products from their list of covered drugs.”
His hiring “represents a significant positive development on multiple fronts,” says Citigroup Global analyst Murali Ganti in a note quoted by Barrons’ Teresa Rivas. Ganti first applauds the speed with which it happened and Papa’s experience. “Finally, we think the optics surrounding a potential fresh start incrementally stabilizes sentiment.”
Optics, of course, are in the eye of the beholder and others have some doubts about whether Papa, accomplished as he may be, is the right executive to get Valeant righted.
“He’s leaving his firm Perrigo in terrible shape,” Rodman & Renshaw analyst Ram Selvaraju tells Bloomberg’s Michelle Cortez and Cynthia Koon. “It looks like he’s abandoning ship and going to another company that’s even more troubled.”
But, unlike Pfizer’s leaders, he was ahead of the tax-inversion backlash. “In 2013, he steered the drugmaker, then based in Michigan, through a merger with an Irish rival,” Dublin-based biotech firm Elan Corp., Anne Steele reports for the Wall Street Journal. He “then established a holding company under its name in Ireland to take advantage of the comparatively low 12.5% corporate tax rate.”
“Papa does not have significant experience in branded prescription drugs, Valeant's area of focus, said Wells Fargo analyst David Maris, Reuters Business reports, pointing out that “Perrigo sells over-the-counter products, which are a small part of Valeant's business.”
“Perrigo has limited international business; Valeant has a lot,” says Maris. “Perrigo has acquired a lot of products and divested very few; Valeant’s future probably has a lot of divestitures.”
Meanwhile, Perrigo’s shares dropped 18% Monday, hit by the double whammy of Papa’s resignation and its cutting first-quarter and full-year estimates “due to industry and competitive pressures in the sector,” Fred Imbert reports for CNBC.
Perrigo named John T. Hendrickson, who had been president since October and EVP, Global Operations & Supply Chain since 2007 before that, as CEO. It also elected independent director Laurie Brlas as chairman.