J. Michael Pearson
J. Michael Pearson | |
|---|---|
| Born | 1959 London, Ontario, Canada |
| Occupation | Pharmaceutical executive |
| Years active | 1985–present |
| Known for | Chairman and CEO of Valeant Pharmaceuticals International |
J. Michael Pearson (born 1959) is a Canadian-American executive in the pharmaceutical sector, known for his tenure as chairman and CEO of Valeant Pharmaceuticals International. His leadership ended after a critical analysis of Valeant’s pricing policies was published by Citron Research in April 2016.
On April 27, 2016, Pearson appeared before the United States Senate Special Committee on Aging, alongside investor Bill Ackman and Howard Schiller, to discuss the effects of Valeant’s operational model on patients and the broader healthcare system.
In 2017, Pearson initiated a $31 million lawsuit against Valeant, alleging wrongful dismissal from his roles as CEO and chairman. A judge in New Jersey subsequently determined that the dispute must be resolved through arbitration rather than court proceedings.
Early life and education
Born in London, Ontario, Canada, Pearson is the son of a Bell Canada employee who later worked for the global consulting firm McKinsey & Company.<ref> At age 12, Pearson relocated with his family to New Jersey.<ref> He graduated summa cum laude from Duke University in 1981, earning both a BS and BSE degree and gaining membership in Phi beta kappa. He also holds an MBA from the University of Virginia’s Darden Graduate School of Business Administration.<ref>
Career
Pearson began his career at McKinsey & Company in 1985, dedicating 23 years to the firm and eventually rising to the position of director.<ref>
Valeant Pharmaceuticals International
Prior to assuming the CEO role at Valeant Pharmaceuticals in 2008,<ref> Pearson served as an external consultant to the company in 2007.<ref> Shortly after taking charge, he divested portions of Valeant’s European operations to Meda AB in 2008.<ref> In 2010, Valeant merged with Canadian pharmaceutical firm Biovail, relocating its headquarters to Mississauga, Ontario, with Pearson appointed CEO and chairman.<ref> This merger facilitated a significant reduction in Valeant’s effective tax rate to approximately 5%, capitalizing on Canada’s lower corporate tax environment.<ref> The company’s tax inversion strategy drew scrutiny from members of Congress.<ref>
Pearson’s approach emphasized curtailing "risky and inefficient" research and development expenditures to roughly 3% of sales, a stark contrast to the industry average of 15–20%.<ref> Rather than investing heavily in R&D, Valeant expanded primarily through acquisitions of companies with existing drug portfolios and implemented cost reductions via workforce downsizing.<ref> This strategy propelled Valeant’s stock price to increase over tenfold, establishing it as Canada’s largest pharmaceutical company by 2013.<ref> By 2015, Pearson held close to $3 billion in stock and options; since his appointment as CEO, shares had surged more than 2,300%, ranking Valeant as the top-performing stock on the Toronto Stock Exchange.<ref> As of July 2015, the company’s market capitalization reached $CDN 113 billion,<ref> surpassing that of the Royal Bank of Canada.<ref>
Nevertheless, Valeant encountered criticism due to steep price increases on medications such as Nitropress and Isuprel, which were raised by over threefold and sixfold respectively.<ref> Congressional Democrats issued subpoenas amid concerns regarding patient affordability.<ref> Following public backlash and a damaging report from Citron Research,<ref> Valeant’s market value declined to roughly $CDN 78 billion by October 2015.<ref>
On October 19, Pearson announced a revised strategy aimed at boosting R&D spending, scaling back acquisitions, and limiting drug price hikes throughout 2016.<ref>
Pearson was hospitalized with severe pneumonia on December 25, 2015.<ref><ref><ref> During his absence, Valeant formed a CEO office led by a committee including Robert Ingram (ValueAct Capital), Mason Morfit, and former CFO Howard Schiller.<ref><ref><ref><ref> The company’s shares dropped over 10%, extending a decline exceeding 60% since August.<ref> Critics contended that decisive leadership was necessary rather than governance by committee.<ref>
He returned to work on February 29, 2016. After an unfavorable earnings call on March 15 caused shares to plunge by half, Pearson was removed as CEO on March 21 in a decision made solely by the board.<ref><ref> The board attributed "improper conduct" to former CFO Howard Schiller and sought his resignation from the board; Schiller declined.<ref>
On April 13, 2016, it was announced that Pearson would be deposed as CEO on April 18 pursuant to an order from the Senate Special Committee on Aging investigating escalating drug prices. Although initially resistant, Pearson ultimately complied under direction from the board.
Tax rate
The 2010 merger between Valeant and Biovail transformed Valeant into a Canadian entity, allowing it to lower its corporate tax burden to approximately 5%. In 2015, Congress investigated corporate tax practices, citing Valeant alongside Burger King as examples that benefit from favorable tax treatment when foreign companies acquire U.S. businesses. Legislators indicated that numerous transactions, including Valeant’s, capitalized on these tax advantages. During congressional hearings, Valeant’s CFO, Howard Schiller, asserted that tax synergies were not factored into acquisition decisions, a statement at odds with prior remarks from CEO Pearson, who had highlighted tax synergies during Valeant’s hostile bid for Allergan.
Pricing
Between 2013 and 2015, Valeant faced intense criticism over its aggressive pharmaceutical pricing policies. Investigations uncovered dramatic price increases on several medications, notably two drugs acquired by the company that saw immediate price surges of 525% and 212%. A company representative defended these actions by emphasizing Valeant’s duty to maximize shareholder returns. CEO Pearson committed to appearing before a U.S. Senate committee in April 2016 to address inquiries regarding these pricing practices.
Accounting tactics
Pearson’s approach at Valeant has been labeled as a roll-up strategy heavily dependent on acquisitions and assertive accounting methods, particularly as the company’s debt neared $30 billion by 2016. Prominent critics included Jim Chanos, Herb Greenberg, John Hempton, Charlie Munger, Jim Grant, AZ Value Investing, and Citron Research. Conversely, activist investors such as Bill Ackman and Jeffrey Ubben defended the company. In October 2015, Valeant issued a response to these accusations in an SEC filing. Pearson maintained that if any products are priced incorrectly, the company will take corrective action to protect shareholder interests.
In 2015, despite a 30% decline in Valeant’s stock value, Pearson was the highest-compensated CEO in Canada, earning US$182.9 million.
SEC Settlement
On July 31, 2020, the SEC concluded that Pearson and others had "misrepresented revenue transactions and included inaccurate revenue allocations." As part of the settlement, Pearson agreed to pay $250,000 in civil fines and return $450,000 to Valeant from his incentive compensation.
Philanthropy
In 2011, Pearson contributed $15 million to the Duke University School of Nursing in honor of his wife, an alumna from the class of 1984. The school’s primary building was named the Christine Siegler Pearson Building in her honor. Later in 2014, he donated $30 million to Duke's Edmund T. Pratt Jr. School of Engineering, his own alma mater; this gift positioned the Pearsons as the fourth-largest donors on Duke Forward’s list. This donation followed a $100 million loan from Goldman Sachs, which required repayment by April 2014. Additionally, the Pearsons gave $7.5 million to the Fuqua School of Business.
Personal life
Pearson was married to Christine Siegler with whom he had four children; their marriage ended in divorce in 2013. He was also publicly seen with another woman prior to this separation. His son, Morgan Pearson, earned an Olympic silver medal competing in the triathlon mixed team relay at the Tokyo 2020 Olympic Games.