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Valeant CEO Michael Pearson Lost $180 Million Yesterday, And $750 Million In Past Year

This article is more than 8 years old.

Michael Pearson, the chief executive of battered Valeant Pharmaceuticals , lost $180 million on Tuesday when shares of his company fell more than 50% following an announcement of slashed earnings guidance for 2016. His fortune was down 40% in that one day. Over the past year, his net worth plummeted from more than $1 billion to an estimated $175 million as of Tuesday’s market close.

Pearson only returned to Valeant on February 29 after a severe bout of pneumonia landed him in the hospital on Christmas Eve. He was out on medical leave for two months. It hasn’t been the return he likely hoped for. His first day back, the SEC announced a formal investigation into the company. A week earlier, Valeant announced that it would restate its fourth quarter earnings due to a reporting error of $58 million in revenue being counted in the wrong quarter.

Pearson was first outed as a billionaire by hedge fund manager William Ackman in April 2014 at an investors' conference while the two were working together, attempting to engineer a deal in which Valeant would purchase Allergan , the maker of Botox, for $6 billion. Though the effort failed (Allergan mounted a spirited defense, and ended up being bought by Actavis , a generic drug maker), Ackman and other high-profile investors placed big bets on Pearson during Valeant’s years of spectacular growth, helping him build his billion dollar fortune.

When Pearson took over as CEO in September 2010, he applied ideas that came from his days as a McKinsey consultant: a tax inversion to create a foreign tax domicile, a stream of acquisitions to grow the company, and a huge appetite for price hikes. He disdained other drug companies for wasting too much money on marketing and research and development. For almost five years the formula seemed to work quite well, making Valeant one of the best-performing stocks on the New York Stock Exchange. Between Pearson’s appointment as CEO in 2010 and August 5, 2015, Valeant’s share price increased more than 1,000% to $262.

Pearson was clearly a believer, too. In January 2015, he agreed to forgo a base salary entirely, instead earning cash and stock awards tied to the company’s performance and agreeing not to sell any of his shares until 2017. It was a deal that tied his fate closely to that of Valeant’s stock, and one that has led to a sharp decline in his personal fortune.

The company’s troubles began spiraling out of control in September when U.S. lawmakers called for an investigation into Valeant's pricing strategy. In a letter to the House Oversight and Government Reform Committee, a group of 18 representatives cited its heart drugs Nitropress and Isuprel. According to the group, prices of these potentially life-saving drugs shot up over 200% and 500%, respectively, when Valeant, which acquired the drugs, began selling them.

In October, it came to light that Valeant was using a previously undisclosed specialty pharmacy called Philidor to distribute its drugs. For expensive drugs, these specialty pharmacies provide an easy way for patients to get insurance reimbursement, even paying their copays, but Valeant’s part ownership in Philidor raised questions about both its accounting and its marketing. Investors viewed the surprise as a breach of trust.

The problems took a personal turn in November when Goldman Sachs demanded repayment of $100 million in loans taken out by Pearson in April 2014--the same month Ackman touted Pearson’s wealth on stage. According to a company press release, these were personal loans taken out to finance charitable donations to Duke University, a community swimming pool, taxes on stock awards, and purchases of additional Valeant shares. Pearson was forced to sell nearly 1.3 million shares to meet the margin call. The day the news was disclosed, Valeant’s stock price dropped by 14%.

Things have gone from bad to worse at Valeant as Pearson struggled with his health, investigations were stepped up, financials restated, and political scrutiny intensified. Time will tell whether the pharmaceutical firm will rebound, but where it goes, so too goes the fortune of its CEO, whose net worth is tightly tied to the company's success.

Editor's note: This article was updated at 1:15 pm ET on March 16 with a new, lower $175 million estimate of Pearson's current net worth. A previous version had estimated his net worth at $250 million.