Here's Why Wells Fargo Doesn't Like Valeant's Big Bonuses

Valeant Pharmaceuticals Intl Inc VRX filed an 8-K on May 16, detailing several multi-million-dollar retention bonuses for its executives.

Analyst Maris of Wells Fargo expressed surprise regarding these retention bonuses, while revising the valuation range for the company from $30-$31 to $27-$31.

Surprising Bonuses

Maris mentioned that the executives receiving the bonuses were the same that “held managerial roles as Valeant faced major business, regulatory, legal, and accounting issues,” while adding that these bonuses open the company up to criticism “of being brazen in the face of public and government scrutiny for pricing practices.”

The analyst stated that the criticism regarding the retention bonuses being paid with money that the company gained via excessive price hikes and that executives who were partly responsible for overseeing these pricing programs were being paid seem justified.

For instance, Valeant Pharma’s CFO is to receive $1 million in cash as a retention bonus, as well as a $2.8 million special equity award, apart from his existing bonus and salary.

Maris pointed out that the bonus was being paid for an executive who had never been a CFO prior to joining Valeant Pharma in 2015, and had been CFO during the period when the company significantly lowered its guidance, disclosed meaningful weaknesses in internal control over its financial reporting and was subject to an SEC investigation.

Estimates Lowered

Although the company has recently reiterated its 1Q16 EPS guidance, it has not commented on the full year guidance.

The EPS estimate for 2017 has been lowered from $10.46 to $9.85, following a review of the recent spending and prescription trends.