Valeant Pharmaceuticals International Inc on Wednesday named board member and former Chief Financial Officer Howard Schiller as interim chief executive to replace Michael Pearson, who has been hospitalized with severe pneumonia since late December.
"As the timing of (Pearson's) expected return is uncertain, he will be on a medical leave of absence until further notice," Valeant said in a statement.
Investors appeared to like the board's decision to have Schiller, Pearson's long-time lieutenant, run the company for now.
During most of the years Pearson led the Laval, Quebec-based company, Schiller worked alongside him. The two employed a rapid growth strategy based on a constant stream of acquisitions and drug price increases.
One large investor who knows Schiller said he has top financial credentials coupled with a more personable manner than Pearson, something that could play well with regulators, lawmakers and investors as the embattled company seeks to repair its tattered image.
Last year Valeant's surging growth stalled amid questions about its pricing and accounting practices, sending its share price tumbling 73 percent from its $263 record in August.
"Schiller's return shows that Valeant has no intention of changing the borrow, buy, and boost prices strategy he helped devise," said Erik Gordon, a professor at the University of Michigan's Ross School of Business.
Schiller left as CFO last year, saying he wanted to "do some things on my own," but he remained on the board. He was part of an investor conference call last fall after Valeant disclosed its tight relationship with Philidor Rx Services. The pharmacy had used aggressive tactics to boost sales of Valeant dermatology products before the drugmaker cut ties.
Valeant is also under investigation by government prosecutors in New York and Massachusetts and is the target of a congressional inquiry.
The large investor said Schiller is the ideal choice to take the reins now because he knows its dealmaking intimately and is not the public face of its troubles.
"Sometimes not having the guy who was in the thick of the problems at the helm to lift the company up again is a good thing," the investor said.
Wall Street analysts said Schiller could help keep Valeant on track in the near term.
Bill Ackman, one of Valeant's largest and most vocal shareholders, with an 8.5 percent stake at his Pershing Square Capital Management fund, expressed his support for Schiller in a statement to CNBC. Other large shareholders include hedge funds ValueAct Capital Management and Paulson & Co.
Schiller was Valeant's CFO from December 2011 to June 2015 and has been on the board since 2012. He previously worked in investment banking at Goldman Sachs for 24 years, experience that helped support a run of acquisitions, including Salix Pharmaceuticals.
The board agreed on Schiller during a call on Tuesday, after at least one large investor had urged it to abandon a quickly pulled together three-person executive committee, a person familiar with the matter said.
A different source familiar with the situation said that the board had talked to many investors about interim replacements as it became clear that Pearson would not return immediately.
Robert Ingram, a former chief executive of drug maker GlaxoSmithKline and a Valeant director since December 2010, will be chairman, the company said. This splits the roles of CEO and chairman for now, which investors often prefer.
General Counsel Robert Chai-Onn, Executive Vice President Ari Kellen and Chief Financial Officer Robert Rosiello took over for 56-year old Pearson when he was hospitalized. The company has not provided further information about his medical history or illness.
One Wall Street analyst said that shareholders are still awaiting Pearson's return. "Investors like Schiller and think he is capable of executing on Valeant’s strategy, but they still prefer Mike Pearson overall and hope that he comes back," said Evercore ISI analyst Umer Raffat.
Investors, many of whom are hoping for a recovery in the shares back to at least $200, are worried that Pearson will not return or that his illness could be used as an opportunity to push him out, Raffat said.
Dr. Debra Spicehandler, an infectious disease specialist at Northern Westchester Hospital in Mount Kisco, New York, said it would be unusual for a patient to remain in the hospital more than five or six days for simple pneumonia alone.
Patients staying much longer could need treatment for bloodstream or hospital-acquired infections and have to remain on ventilators to assist their breathing. Spicehandler, who is not treating Pearson, said they might also have experienced serious consequences of pneumonia, such as a heart attack or heart failure.
Valeant shares ended trading on Wednesday up 1.5 percent at $102.40 on the New York Stock Exchange, after rising as much as 5 percent earlier in the day, while most other pharmaceutical companies' stocks fell.
(Reporting by Caroline Humer and Carl O'Donnell in New York and Svea Herbst in Boston; Additional reporting by Ransdell Pierson in New York and Amrutha Penumudi in Bengaluru; Editing by Kirti Pandey, Lisa Von Ahn and Steve Orlofsky)