Missouri Dem Sen. Claire McCaskill opened up a can of whoopass on executives and investors of Valeant Pharmaceuticals before a Senate hearing on Wednesday, and it was glorious.
The Senate Special Committee on Aging is one of two U.S. congressional panels investigating sky-rocketing price increases of certain decades-old drugs acquired by companies including Valeant and Turing Pharmaceuticals, a company founded by Martin Shkreli.
Ackman, a major Valeant shareholder, appeared Wednesday alongside the company's outgoing Chief Executive Michael Pearson and Howard Schiller, a board member and former chief financial officer.
Ackman joined the board last month as Valeant faced mounting scrutiny by members of Congress, prosecutors and regulators over its drug pricing, business practices and accounting - issues that have caused its share price to plummet almost 90 percent since August.
Valeant has about $30 billion of debt and has been negotiating with creditors, some of whom issued notices of default after it missed a deadline for the filing of its financial results.
Ackman said Wednesday that one of his top priorities is to protect the company from bankruptcy. Later, in response to a question from Reuters, he expressed confidence that the company will recover.
“There is not going to be any bankruptcy of Valeant,” he said. “We were in a death spiral, and we have taken steps to deal with the banks. We are going to file our 10K on time. We brought in a new CEO.”
Pearson, Ackman and Schiller all told lawmakers on Wednesday they regretted Valeant's pricing decisions.
"The company was too aggressive and I, as its leader, was too aggressive in pursuing price increases on certain drugs," he said.
But many lawmakers on the panel appeared skeptical. They questioned Valeant's business model of investing little in research and development, and the company's practice of acquiring decades-old drugs and raising the prices.
Senator Claire McCaskill, the panel's top Democrat, angrily asked each of the panelists at one point if they could recall one drug that Valeant didn't raise the price on.
"Not in the United States," Pearson responded, while Schiller was only able to come up with the name of one drug Valeant acquired after its purchase of Salix.
"That is not social good, that is social bad," McCaskill said.
Even worse, Valeant disclosed that current CEO Michael Papa will be taking a measly $1.5 million a year base salary...and stock options that could be worth tens, if not hundreds of millions.
On Wednesday evening Valeant disclosed Papa’s employment agreement. A first look at the compensation terms indicate the embattled company plans to continue offering stock awards that reward a focus on aggressively increasing the company’s share price.
Documents Valeant filed with the Securities and Exchange Commission indicate Papa could make nearly $100 million if its stock can return to an October 2015 level of $150 a share. If Valeant’s share price hits $270, Papa will make well over $500 million in stock awards, along with cash bonus awards. The stock closed at $34.92 Wednesday.
One stipulation in the agreement, a lockup requiring Papa to own shares for a number of years, wties his rewards to sustainable growth, in theory. But Papa’s stock incentives, called performance share units, are similar to the arrangements that turned Pearson into a paper billionaire as Valeant became a stock market darling.
So yes, Mr. Papa would be a moron to pass up hundreds of millions by not jacking up prices once again on life saving drugs, because his job is to do exactly that.
That's how the game is played.