Bill Ackman's Pershing Square updated investors on Valeant Pharma (NYSE: VRX) in its annual report to holders. The fund said while confidence can vaporize quickly, it also can be restored rapidly when appropriate governance, oversight, and management issues are addressed properly. Tjheu believe that when the 10-K is filed, new leadership is identified, and the market understands that Valeant has adopted a new approach to communicating with the public, investor confidence will be restored and the stock should trade at a price which better reflects its business fundamentals.

Business is fundamentally about trust and confidence. Without trust and confidence, business value can vaporize quickly. Valeant Pharmaceuticals is a case in point.

Since its high in August 2015, Valeant’s stock price has declined 87%. During the week of March 14, 2016, the stock declined 58% as shareholders dumped Valeant stock regardless of fundamental value for fear the company would lose access to capital.

The loss of confidence was caused by a combination of questions raised about Valeant’s accounting, drug pricing, government investigations, reduced earnings guidance for 2016, and a near total information vacuum compounded by continued attacks from critics, the media, and short sellers. Without access to adequate information from the company, shareholders had no choice but to assume the worst. Owning Valeant was perceived to be a career-ending decision going into the weekend for most investment managers.

In order to protect our investment and help stabilize the company, we implemented a straightforward plan. First, we put ourselves in a position of influence and gained access to inside information. Steve Fraidin, our Vice Chairman, was invited to join the board on March 9th along with two other new directors: Dr. Fred Eshelman, a pharmaceutical industry entrepreneur, and Thomas W. Ross, former president of UNC and a former Superior Court judge.

Since Tuesday of last week, beginning a few hours after Valeant’s earnings call, two members of PSCM’s investment team have been spending time at Valeant so that we can have a better understanding of the company’s operating performance, verify management’s revenue, earnings and cash flow guidance for 2016 and build our own financial model for the company. Bill Ackman attended board meetings as an observer beginning on Thursday and through the weekend, and officially joined the board on Monday morning. We have been given access to information and to management necessary for us to conduct due diligence and assist the company.

The new board worked collaboratively over the weekend to understand the conclusions to date of the Ad Hoc Committee’s investigation of Valeant’s accounting and to discuss CEO Mike Pearson’s continued candidacy as CEO.

On Monday morning, the company filed a press release and 8-K that announced:

1) CEO Mike Pearson will be stepping down as CEO once a new CEO is identified;

2) Bill Ackman joined the board;

3) The Ad Hoc Committee's investigation of accounting issues is nearing completion, and does not anticipate additional issues that have financial statement implications;

4) Valeant will restate certain past period results for $58 million of revenue booked in Q4 2014 when it should have been recognized in Q1 2015;

5) The company is expected to file its 10-K no later than April 29, 2016, which is within the cure period for the company’s outstanding bank debt and bond obligations;

6) The company will seek an extension from its banks to file in the event there are further delays; and

7) The company explained the reasons for its delayed 10-K filing.

Steve Fraidin, along with the audit committee, management and the company’s advisors, has worked to assist the company in completing its 10-K filing by April 29th, within the cure period for both the company’s bank facilities (without regard to any extension created by the bank waiver process) and outstanding bond indebtedness. This is a work in process, but the company is committed to meeting its goal.

One of the greatest threats to the company’s performance is the morale issues created by a collapsing stock price, constant attacks in the media, and the inherent uncertainty of the events of the last few months. Senior management has done a good job retaining talent and it is imperative that the company continues to do so.

On Monday afternoon, Valeant’s Chairman Bob Ingram, CEO Mike Pearson, and Bill Ackman spoke with Valeant employees at its Bridgewater, N.J., United States headquarters and explained how appreciative the board and shareholders are of their willingness to work hard and stay focused under difficult conditions, and to answer any questions that they may have. We believe that Monday’s announcements will begin to calm the 22,000 people who work for Valeant as the inherent uncertainty of the situation has diminished significantly and the stock price has begun to rise.

While trust and confidence can vaporize quickly, it also can be restored rapidly when appropriate governance, oversight, and management issues are addressed properly. We believe that when the 10-K is filed, new leadership is identified, and the market understands that Valeant has adopted a new approach to communicating with the public, investor confidence will be restored and the stock should trade at a price which better reflects its business fundamentals.