U.S. stocks are higher in early Tuesday afternoon trading, with the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) up 0.88% and 0.81%, respectively, at 12:10 p.m. EST. Following a 10.5% loss on Monday, on the announcement of CEO J. Michael Pearson's medical leave of absence, shares of Valeant Pharmaceuticals International Inc continue to underperform today, down 1.54%.

Valeant CEO J. Michael Pearson.

You don't schedule an illness, of course, but for Valeant Pharmaceuticals, CEO J. Michael Pearson's medical leave due to a severe bout of pneumonia couldn't have come at a worse time. The embattled pharmaceuticals company has been struggling to recover from a massive loss of investor confidence that has seen its stock lose three-quarters of its value from peak to trough.

On Monday, Valeant announced that Pearson will be temporarily replaced not by an interim CEO but instead with what looks like an unwieldy structure: The Office of the Chief Executive Officer will comprise the General Counsel, the Company Group Chairman (different from the Chairman of the Board, a role Pearson also performed) and former Chief Financial Officer and director Howard Schiller.

The Office of the CEO will, in turn, be supervised by a new three-man committee of the lead independent director, the president of VaueAct Capital, G. Mason Morfit, and Howard Schiller (doing double duty supervising himself, presumably).

Here's how Valeant characterizes its key man risk in the "Risk Factors" section of its 2014 Annual Report (my emphasis):

We must continue to retain and motivate our executives, including our Chief Executive Officer, J. Michael Pearson, and other key employees, and to recruit other executives and employees, in order to strengthen our management team and workforce, especially in light of the growth of our Company. A failure by us to retain, motivate and recruit executives and other key employees could have a material adverse impact on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

This is boilerplate language, but as yesterday's share price action demonstrated, the market perceives that risk to be acute at Valeant. After all, Pearson is the architect behind Valeant's "innovative" strategy, including its frenetic reliance on acquisitions over research and development.

The following statistic speaks for itself: The day prior to the Feb. 4, 2008 announcement of his appointment as CEO, Valeant had a market capitalization of $2.1 billion. At the stock price's high in early August, that value had ballooned to $84.6 billion -- a 40-fold increase in less than six years.

The bottom line, as far as this columnist is concerned is this: With or without Pearson, the strategy that drove explosive value creation at Valeant has reached its limits, upending the company's business model. Pearson himself has acknowledged that "the pricing that pharmaceutical companies will take in the future will be more modest." Furthermore, with $29.5 billion in net debt and debt markets becoming less accommodative, significant acquisitions are no longer on the table.

On that basis, here are my two predictions for 2016: Regardless of whether Pearson is on leave for a week or for the entire year, Valeant Pharmaceuticals' stock will post a loss, and ValueAct's representative, G. Mason Morfit, will resign his seat on the company's board (ValueAct owns 4.9% of the company, according to data from Bloomberg).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.