The guy who may take over Valeant is walking from crisis to crisis

Joe Papa

Valeant Pharmaceuticals is on the verge of hiring a new chief executive.

His name is Joe Papa and he’s currently the CEO of over-the-counter drugmaker Perrigo.

Wall Street might’ve been surprised by this pick. Perrigo’s biggest business, by far, is making store-brand versions of things like Sudafed and Nyquil.

As Morgan Stanley analysts pointed out, Papa doesn’t have much experience with branded pharmaceuticals — the part of Valeant’s business that’s really hurting after it shut down a specialty pharmacy that distributed the drugs.

But Perrigo’s recent past offers a clue to what hedge fund billionaire Bill Ackman, of Pershing Square, and the rest of Valeant’s executive search committee see in him.

Perrigo spent most of 2015 facing — and fending off — a hostile bid from Mylan Pharmaceuticals.

A takeover offer by an admiring rival might seem like great news, but Perrigo wasn’t interested in selling and in that an unwanted offer is a crisis. Keeping a deep pocketed buyer at bay means convincing shareholders to stick with you in the face of a nice short-term return.

The situation between Mylan and Perrigo was nasty enough that it devolved into lawsuits and claims of misrepresentation, poor governance, and false statements.

Mylan wanted Perrigo’s over-the-counter assets, but Perrigo criticised Mylan for not putting shareholders’ best interests first, and argued that it had better growth prospects without Mylan.

Perrigo’s board unanimously rejected Mylan’s bid in September, citing Mylan’s “troubling corporate governance.” The company also cut 800 jobs and bought back stock in order to fend off the bid.

The battle ended last November, when only 40% of Perrigo’s shareholders said they were interested in selling to Mylan.

Analysts at Wells Fargo think the company has good prospects now that those dark days are behind it [emphasis ours].

We believe PRGO shares will rebound in 2016 as the distractions of 2015, such as fending off a hostile bid, are behind it. While 2014-2015 also saw a number of execution and operational issues we think here, PRGO will benefit from added management capacity, new product launches, and M&A integration. We believe further integration and earnings upside may bring a higher valuation as the company rebuilds investor confidence. In the sector’s down turn, we believe investors should be focused on best in class franchises such as Perrigo.

So, people, this is a survival story — and there’s nothing Valeant needs more than a CEO who knows how to survive drama. It has been a horror show for investors since October, when accusations of malfeasance from a short seller combined with government scrutiny over its drug pricing practices brought this former Wall Street darling to its knees.

We should note that Perrigo’s stock is down over 5% on the news that its CEO may be leaving for one of the most controversial companies in America. The company’s comment on his potential exit was pretty icy too. It said simply: “We are aware of the speculation regarding our Chairman and CEO Joseph Papa. As is our company policy, we do not comment on speculation or market rumour.”


According to the WSJ, the only thing standing in the way of Papa moving over is a contractual issue, so we may soon know whether or not Papa is ready to take on another survival challenge.

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