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Valeant (VRX) Declines as CEO Takes Leave Due to Illness

There seems to be no end to the beleaguered Valeant Pharmaceuticals International, Inc.’s VRX woes. The company announced that its chairman and chief executive officer (CEO) J. Michael Pearson has taken a medical leave of absence, effective immediately as he is being treated for pneumonia.

Consequently, the company’s board of directors has created an Office of the CEO to serve on an interim basis. This office will include Robert Chai-Onn, Executive Vice President and General Counsel; Dr. Ari Kellen, Executive Vice President and Company Group Chairman; and Robert Rosiello, Executive Vice President and Chief Financial Officer (CFO).

Additionally, the board created a committee to oversee and support the Office of the CEO. This committee includes Robert A. Ingram, Lead Independent Director; G. Mason Morfit, President, ValueAct Capital; and Howard B. Schiller, former CFO of Valeant.

Shares of the company declined 10.5% on the news. We note that Valeant has been under the spotlight since Aug 2015 for all the wrong reasons like a price hike of specialty drugs, erroneous financial reporting, and termination of contracts with Philidor Rx Services.

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Specifically, this October, the company came under the spotlight because of a massive price hike of two of its drugs — Isuprel and Nitropres. These drugs, acquired by the company earlier this year from Marathon Pharmaceuticals, were used by hospitals and other providers to treat serious heart conditions. Since the acquisition, the company has hiked their prices by 212% and 525%, respectively. As a result, Valeant was accused of having followed the same business model as Martin Shkreli, whose company had spiked the price of Daraprim from $13.50 to $750.

Moreover, Valeant’s relationship with Philidor Rx Services, a specialty pharmaceutical company providing back-end services came under the scanner in Oct 2015 after it was alleged that the latter was urging pharmacy benefit managers to opt for expensive drugs over their cheaper generics. Consequently, Valeant terminated its relationship with Philidor, whereby it lost 20% of prescriptions and $250 million in sales in the fourth quarter. Subsequently, Valeant lowered its guidance for the fourth quarter of 2015 and the full year.

To make amends, Valeant entered into an agreement with Walgreens Boot Alliance, Inc. WBA earlier in the month and decided to lower prices by 10% of all its dermatological and ophthalmological products that are distributed through Walgreens retail outlets.

Investors saw another ray of hope when the company announced its guidance and strategy for 2016.

However, given the turmoil the company is in at the moment, the CEO’s extended absence increases the uncertainty related to its future strategic plans.

Valeant currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the healthcare sector include Pfizer PFE and Bristol-Myers Squibb BMY. Both carry a Zacks Rank #2 (Buy).

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