31 Oct 2016
Exclusive interview with Valeant Pharmaceuticals' new CEO
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Joseph Papa explores his first 100 days with the troubled pharma giant
In an exclusive interview, Joseph Papa, recently installed Chairman and CEO of Valeant talks to John Hawkins, Vice-Chairman and Director of Odgers Berndtson USA, about the challenges that lie ahead.
The first 100 days
John Hawkins: What did your first 100 days at Valeant Pharmaceuticals look like? You walked into a difficult situation, so what have you done?
Joseph Papa: To me, it was always going to be about getting to better know the people in the organisation, and understanding the perspective of our customers and stakeholders. During my first few weeks, I had dinner with key opinion leaders to learn about what Valeant does really well, and what we can improve on. One of the early critical steps was to define Valeant’s mission: ‘Improving people’s lives through our healthcare products.’ Many people raised questions about Valeant’s past, but to me it was about building a new company that truly makes a difference to people’s lives through our products. I also wanted to meet the Valeant team members – as many as possible – as soon as possible. Clearly Valeant is a unique company in that we have significant debt. So it was also important to meet with investors, debt holders, creditors and shareholders, among other constituents. I think we’ve tried very hard as a team to dispel some of the noise that’s been part of Valeant recently and, importantly, focus on the future.
JH: Were there experiences you drew on from, say, your time at Perrigo [a leading global healthcare supplier] or elsewhere that helped guide your thinking?
JP: I think what’s important is your own experience. For me, number one is I am a pharmacist by training, and have been involved in the pharma industry for more than 30 years. In addition, being able to look at data and the science, and make decisions based on analytics is a critical skill from my pharmacist training.
It’s also important to focus on the importance of interactions with patients. What is it that patients look for from our products?
Those are very important messages that I felt helped me as I joined Valeant – but also throughout my entire career. The other important experience goes back even further to playing high school hockey, and learning to be a part of a team and leading a team.
"I know sometimes people are afraid to raise their concerns to the CEO... but I wanted to give everyone the opportunity to say ‘here’s what I think is broken'"
JH: How are you gathering feedback about how it’s going at Valeant and getting honest responses?
JP: As you can imagine, we’ve had some really good things happen at Valeant but we’ve also had some challenges. I knew going in that I wanted to hear what people really thought. So I’ve done a couple of things. Firstly, I’ve had six town hall meetings, here in Bridgewater [New Jersey, Valeant’s US HQ] but also in Canada and Europe to meet as many of the team as possible and to hear their comments. I know sometimes people are afraid to raise their concerns to the CEO of the company, but I wanted to give everyone the opportunity to say ‘here’s what I think is broken, you need to get this fixed right away’ or ‘here’s what I think is going really well in this company, make sure you keep it going’.
What I was most pleased with in that process is the engagement in my company. During a recent town hall meeting, more than 80 per cent of the employees at Bridgewater put in a comment or suggestion!
JH: That’s an amazing response.
JP: The other thing I’ve done – and to be fair I’ve only been able to do this so far at Bridgewater – is to spend time with small groups of 10-15 people once a week over breakfast or lunch. I start with ‘introduce yourself and tell me what department you’re in and how long you’ve been with the company’ and this is at all levels. I ask them to share their likes and dislikes about Valeant and assure them that I’m not going to share any person’s specific comment because then the next group will never tell me another thing! But what I will do is take their comments and synthesize them to help me think about what needs to happen.
JH: Are there any metrics or tools that help guide your messages?
JP: I am by definition a data person. I like data to help me make decisions. I believe that understanding your market share is important, so looking at data both from the prescription side but also from a market share point of view are fundamentally important. Valeant was very decentralized and that works really well when you get into individual business units making decisions, but I felt one of the things I had to do was centralize some functions. For example, our supply chain was decentralized, which made a lot of sense for us, but there were places where we were just not getting sufficient supply of product ‘X’ and it was because it was being made at one site for another region of the world.
The other metric that’s been really important to me is return on investment. I want to make sure that as we allocate capital, for example the expense of a new contact lens line, we see an appropriate return on investment. In my mind it’s very simple: the shareholder buys a share of our stock, they give us capital, which then has to show a return on investment or return on invested capital to warrant them buying our stock versus a competitor or just putting it in a savings account. So return on investment has always been very important in my past and it’s going to be very important for us at Valeant in the future.
Engaging with the board
JH: Before we leave the first 100 days, I want to ask one final question. Were there things done by your board – or other staff members of the company – that you found helpful to your onboarding process and that others could learn from?
JP: I will say first and foremost, I have a very active board which I very much appreciate, especially because of what Valeant has been going through. There were important activities that needed to get resolved and I had great input from all the board members to help us think through some of the decisions relative to what we need to do for our debt holders.
Early on in my tenure, we had a regular board meeting cadence. I think that was a really helpful process especially given the number of activities that were ongoing here at Valeant when we were trying to make important decisions and move forward. The only other thing I’ll say is that I’m fortunate to have some very talented people as part of the team, people who really understood the history at Valeant, specifically Rob Rosiello [Executive Vice President, Corporate Development and Strategy]. When I arrived he was the CFO of the company, a great individual who spent a lot of time on the details to ensure we were making progress.
JH: We talked a little about the board. How have you been able to get to know your board members and build bonds with them?
JP: I have tried to understand their perspectives and what their specific areas of interest are and, importantly, to help me think through a particular problem. Who on the board has the type of expertise to help me? We’ve got a lot of people with great pharmaceutical experience on the board – Bob Ingram, Bob Power, Fred Eshelman, Jerry Karabelas – so I clearly look to them on certain questions within the pharma side. On the other hand we’ve got directors with vast investor knowledge such as Bill Ackman, Steve Fraidin and Rob Hale. So depending what the problem is we have great people to go to. We also recently added Amy Wechsler – a dermatologist with a psychiatry background. Each of the board members brings a certain expertise to help me.
JH: Have there been any new strategies around communicating with the board?
JP: I think it was very similar to what I’ve done previously; making sure there are regular updates to the board, whatever the issues may be. Importantly, I’ve used some activities with bankers and some of the board members to just think through a new strategy for our company. You walk through the door of a new company that’s got ballpark $10 billion of revenue and yet you have a lot of debt, so you have to decide ‘ok, I’m going to keep these core assets but I want to think about divesting some of these other assets’, what I refer to as non-core. That’s an interesting process. It was vital to have the back and forth with the board members to make sure we were going down the right path.
"We have tried to be as transparent as we possibly can be to the marketplace"
JH: Of course you’re new and you’ve got these new faces and nobody knows each other all that well, what are you doing to help bring the board together?
JP: In many ways it’s more than a new board; it is also a new leadership team. I’ve got a new CFO, General Counsel, Chief Accounting Officer and Head of Business Strategy and Communications. First and foremost, I’ve tried to get the leadership team and the board together in one meeting. In some respects it’s time that is valuable for all of us, but at the same we’re going through some topics to educate each other about important and urgent items. I want everyone to be familiar to each other, not just me. For example we have a brand new arrangement with Walgreens for our dermatology and ophthalmology products so that’s a natural place to say, let’s spend a few minutes to educate you on this. It’s a 20-year agreement and at that point we were just six months into the deal – we want to help everyone understand what the future will look like for us.
Research and development at Valeant
JH: What role will R&D play in the new Valeant? Everybody’s asking that question.
JP: I think that’s one of the most misunderstood things about Valeant. R&D has always been very important to Valeant and I believe it will be even more important to us in the future. For example, within the first three months of my tenure we had three FDA actions occur just in the month of July. In one case, we had an advisory panel meeting on a drug called brodalumab for psoriasis, where remarkably it had an 18 to 0 vote recommending approval. From the data we’ve seen, if approved, it may be one of the most effective drugs for the treatment of that condition, which links perfectly back to our mission. Here’s a company that isn’t thought about for R&D, yet we have one of the best psoriasis products coming to the market and that will make a real difference to patients’ lives. I think it shows good progress on the things we think are going to be important for our company.
Finance: a new approach
JH: Let’s shift gears a little and talk about finances and some of the financial imperatives that Valeant faces?
JP: I think there are a couple of things here. Number one, we have tried to be as transparent as we possibly can be to the marketplace on what we’re doing with our debt. We are paying down debt, as quickly as we can, but there is a large amount of it – over $30 billion. We did come out with new guidance for 2016 and what I said is that this is my first look at the company and this is what we think we will do for top-line revenue, as well as for the year 2016. Every time I met with our investors or debt holders this question about the amount of cushion between that generation of EBITDA we’re expecting for 2016 versus the amount that’s required not to break the covenant is not as large as I’d like. And for that reason I said we’re amending our covenants on our debt. Because the reality is there are a lot of great things happening here at Valeant but much of the conversation always gets steered back to ‘is there enough cushion between your debt covenants and your EBITDA generation’. We had an amendment in place so we can talk about what is the future of the company. We announced that fairly recently (in early August) and we think it’s an important step to show how we’re going to continue making progress deleveraging the company. We have asset sales worth up to $8 billion; we think that will help us to deleverage the company as well, so we’re going to keep moving on that.
JH: Are there any new strategies being deployed to address the creation of a new base of long-term investors?
JP: Two important things. We’ve announced, (with your help of course) the appointment of Paul Herendeen as our new Chief Financial Officer and Scott Hirsch as our new Head of Business Strategy and Communications. I think both of those moves will help us reach out to our new investors. We are creating a new Valeant. Valeant had a very loyal following of investors but as we build the new Valeant we’re going to potentially find different investors that are also interested in our company. That, importantly, is not only something the CEO does, it’s also something that having a good strong CFO is going to help me with. It’s also about how we define our strategy and communicate to the marketplace. Scott, who was formerly with Citadel, will help us think through how we communicate our messages.
JH: You mentioned changes in the leadership team, how, at a high level, are you thinking about the global organisation?
JP: We have some very talented people across the globe that I have already had a chance to meet but I needed to consolidate my international business, so everything outside of the United States and Canada is under one leader. I’ve done that. Tom Appio – who has a wealth of experience at Bausch + Lomb and prior to that at Schering Plough, and is currently a resident of China – is going to help us to run all this international business. He’ll be able to put together things from his knowledge and experience that I think are going to be critically important for us in terms of how we look at the international business, get results for our shareholders and, importantly, make sure our products are available globally.