Valeant Sinks After CEO Returns, Guidance Withdrawn

The shares of pharmaceutical company Valeant (VRX) are falling after the company announced that its CEO, J. Michael Pearson, had returned to work after taking time off to recover from an illness. The company also announced that it had decided that Pearson would no longer hold the chairman title. It appointed Robert Ingram as its new chairman. Additionally, Valeant announced that it was postponing the release of its results, which had been scheduled to occur today, and said that it was withdrawing its previous 2016 guidance.

WHAT’S NEW: Valeant last night announced that Pearson had returned to work after recovering from severe pneumonia and other complications. Ingram, who was appointed chairman, had been serving as interim chairman and has been a member of Valeant’s board since 2010. He has been a general partner at venture capital firm Hatteras Venture Partners, which focuses on biopharmaceuticals and medical devices, since 2007. “I realize that recent events are disappointing to everyone, and it is my responsibility to set the appropriate tone for the organization,” Pearson said in a statement. “My immediate priority will be to build stronger relationships with important constituents, such as managed care and other channel partners, regulators and government representatives, while improving Valeant’s reporting procedures, internal controls and transparency,” he added. The company said it would provide updated 2016 guidance “in the near term.”

ANALYST REACTION: TD Securities analyst Lennox Gibbs responded to the news by downgrading the stock to Hold from Buy. As reasons for the downgrade, Gibbs cited the company’s decision to postpone the release of its results and withdraw its guidance. These developments could cause investors’ confidence in Valeant to erode further, according to the analyst, who slashed his price target on the name to $110 from $155. Conversely, UBS analyst Marc Goodman kept his Buy rating on Valeant, saying that Peason’s return, which had been in doubt, is positive for the company’s longer term outlook. Although Valeant’s decision to withdraw its guidance is negative, many investors had been skeptical about the accuracy of the guidance anyway, wrote Goodman, who kept a $213 price target on the name. Also defending Valeant today was JPMorgan’s Chris Schott. Pearson’s return will boost Valeant over the longer term and the company’s decision to postpone its results and withdraw its guidance is “unfortunate but “necessary,” given Pearson’s return, according to Schott. He remained upbeat on the company’s “underlying fundamentals” and kept a Buy rating on the shares.