Joe Papa has seen the ups and down of the drug industry firsthand. But he’s never run anything quite like Valeant Pharmaceuticals International.
Papa, who takes over as Valeant’s chief executive officer next month after an almost decade-long tenure atop Perrigo Co, is familiar with how fast investors can turn on a high-flying company. Over his tenure, Perrigo’s shares rose more than 10-fold, only to lose more than half their value in a year as the company undertook a bruising takeover defence against Mylan.
At Valeant, the issues he will face are far larger, and the stock has lost more than 80% of its value since an August peak. Papa, 60, will have to rebuild Valeant — and its stock price — from the ground up, creating a new strategy that doesn’t depend on large price increases or continuous acquisitions.
While he has decades of industry experience, Papa also opened himself up to criticism that he’s trading in one troubled drug maker for another. On Monday, Perrigo said it was cutting its forecast, and might have to take a charge on its 2015 acquisition of Belgian drug maker Omega Pharma.
“He’s leaving his firm Perrigo in terrible shape,” Ram Selvaraju, an analyst with Rodman & Renshaw, said in a telephone interview.
Valeant, meanwhile, is facing investigations from Congress and the US Securities and Exchange Commission and may need to sell off businesses to pay down some of its more than $30bn in debt, has cut its forecast, and will restate earnings for 2014 and 2015. The company announced in March that CEO Mike Pearson would leave once a replacement was found.
“It looks like he’s abandoning ship and going to another company that’s even more troubled,” said Selvaraju, who has a buy rating on Valeant; he doesn’t cover Perrigo.
Perrigo’s board was surprised by Papa’s decision to take the Valeant job, according to a person familiar with the situation. The person asked not to be identified because the matter was private. The board moved quickly to make John Hendrickson, who was named president of the company in October, the new CEO, according to the person. Attempts to reach Papa directly, through Valeant and Perrigo, weren’t immediately successful.
While running Valeant will be a challenge, it may be a well-timed one, said David Amsellem, an analyst with Piper Jaffray & Co Investors have been sitting on the sidelines, waiting for Valeant to file its delayed annual report and hire a new leader to restore credibility.
“There’s virtually no downside for him, since all of the missteps and malfeasance happened under someone else’s watch,” Amsellem said. “Even if Valeant were to go bankrupt, he most likely wouldn’t get blamed.”
Pearson, through his lawyer, declined to comment. Papa, in a statement, said he was “excited to take on the challenge of leading Valeant and helping the company chart a new course.”
Papa has spent decades in the industry working for brand-name and generic drug makers. He worked at Novartis, one of the largest brand-name drug makers in the world, and then in 2000 joined Pharmacia Corp as president of global country operations. He then moved to generic-drugs manufacturer Watson Pharmaceuticals as chief operating officer before taking a senior role at Cardinal Health, one of the US’s largest drug distributors, in 2004.
“This represents a home run for Valeant,” Murali Ganti, a credit analyst at Citigroup Global markets, said in a note to clients after media reports last week saying Papa might take the job. “His deep experience and industry knowledge are vital to stabilizing the Valeant complex.”
Pearson was first lauded as the stock rose and he made deal after deal, gaining billionaire investor Bill Ackman as one of his biggest supporters. After Valeant faced mounting troubles in recent months, the CEO lost Ackman’s backing. 
The investor, whose Pershing Square Capital Management LP has become one of Valeant’s biggest holders, criticized Pearson for failing to communicate with investors and the public about the company’s challenges. Ackman now sits on Valeant’s board.
Papa was most recently in the spotlight during Perrigo’s defence against Mylan, which made a $26bn hostile takeover attempt last year. In a bitter back-and-forth between companies, Papa questioned Mylan’s leadership, scoffed at its valuation of Perrigo and flew to Israel for face-to-face briefings with the company’s largest investors aimed at scuttling the proposal. He was victorious — just 40% of Perrigo holders tendered their shares to Mylan in November — but at a price. Shares of Perrigo fell 18% between when Mylan’s bid was rejected and when reports circulated that Papa might depart for Valeant.
By leaving Perrigo, Papa will forfeit about $16.4mn in unvested stock options and restricted shares of Perrigo, based on Thursday’s close. Companies often replace equity awards that new hires have to leave behind when they switch jobs. A Valeant spokeswoman declined to comment on whether the company might do so for Papa.
One thing Pearson and Papa have in common is that both relocated the legal addresses of their business abroad, moves known as “tax inversions” that are used to escape high corporate tax rates in the US and gain access to foreign-made profits. In 2010, Valeant used a deal with Biovail Corp to shift its legal address to Canada. Perrigo, in 2013, bought Elan Corp for $8.6bn, shifting its address to Ireland. Both companies have kept their operational headquarters in the US.