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Valeant Pharmaceuticals Hands Out Million Dollar Bonuses As Compensation For 'Challenging Times'

This article is more than 7 years old.

Valeant Pharmaceuticals is planning on paying its top brass multi-million dollar bonuses as a reward for sticking with the embattled drugmaker through an accounting scandal, numerous regulatory investigations, and criticism in the Senate and House of Representatives on its strategy of acquiring off-patent drugs and dramatically increasing their prices.

Late on Monday, Valeant disclosed that it will pay chief financial officer Robert L. Rosiello, and executives Dr. Ari Kellen and Anne C. Whitaker $1 million retention bonuses, made in three tranches through the course of 2016. These executives will also receive so-called "special equity awards" of $2.8 million, $3.8 million and $1.25 million, respectively, in the form of restricted stock units that vest over 18-months.

The retention and equity bonuses come at critical juncture for Valeant.

The once high-flying pharma industry consolidator stumbled last fall when the Senate launched an investigation into its 800%-to-6,000% price increases of four recently acquired drugs, Syprine, Cuprimine, Nitropress and Isuprel. Weeks later, an investigation by the Southern Investigative Reporting Foundation uncovered Philidor Rx, a specialty pharmacy unit that Valeant had consolidated but did not adequately disclose to investors. That mail order pharma channel then came under heat from pharmacy benefits managers who accused it of improperly filling scripts. Valeant severed ties with Philidor but it caused a litany of accounting restatements, delaying financial results to the point of nearly putting the company's $30 billion debt load in default.

Amid this disaster, which caused Valeant's shares to tumble over 80% over a six-month stretch, company architect J. Michael Pearson resigned and was replaced by former Perrigo CEO Joe Papa. In late April, Pearson, ex-CFO Howard Schiller, and top shareholder Bill Ackman of Pershing Square went hat in hand to Washington to disavow some of their drug pricing practices. Valeant was able to file some financial statements last month, further diffusing pressure against the company.

With a new CEO at the helm, Valeant is trying to present a new public face after nine months of intense scrutiny. However, one staple of its business model -- heavy time-bound incentives -- appear to remain a hallmark of the company. Papa stands to make upwards of $500 million if Valeant's stock hits $270 by 2020, and nearly $100 million if shares re-test their October highs. Other top executives stand to make tens of millions of dollars if Valeant can hit certain share price targets.

The heavy retention bonuses doled out on Monday further indicate pay will be a big part of working for a kinder and gentler Valeant. Or, perhaps, Valeant has become such a toxic workplace only heavy incentives can generate loyalty inside the company.

"We know that these continue to be challenging times for our company. We are appreciative of your continued dedication and commitment to the organization as a member of the Executive Management," Valeant states in its retention letters for Rosiello, Kellen and Whitaker.

Also on Monday, Valeant said it will offer hospitals rebates as high as 40% in Nutropress and Isuprel, following through on a price cut commitment Ackman, an independent director, made in his visit to Washington in late April.

"I understand the concerns our partners in the health care community have had about the pricing of these drugs, and we want to ensure hospitals and patients can get the drugs they need," CEO Papa said in a statement. "We are committed to getting this right," he added.

Many hedge funds that once were big investors in Valeant disclosed in recent days they sold off their holdings during the first quarter as the company's problems intensified.

Viking Global, Brahman Capital and Jana Partners all disclosed in securities filings they liquidated their Valeant Holdings. So too did T. Rowe Price, one of Valeant's earliest investors. However, Pershing Square and ValueAct Capital, two funds with representation on Valeant's board maintained their large stakes.

Read More: Valeant Pharmaceuticals' Prescription For Disaster