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Valeant’s Misleading Case

Matthew Herper has excellent coverage here of Valeant’s bid for Allergan, specifically Valeant’s view of actual pharma R&D (which they, for the most part, don’t bother to do). He’s especially peeved (with reason) that the company is citing some of his own stories on the topic of R&D productivity to make its case, but in an underhanded way.

On page 9, which cites one of my stories, Valeant uses data from Richard Evans at Sovereign & Sector, LLC, that is available for purchase on the website It takes one of several metrics Evans used to measure companies’ R&D productivity – their economic returns to R&D spending – and says that, for big companies, these are less than the cost of capital, which Allergan pegs at 10%.
OK. But by picking only the largest companies, Valeant gets to not include Allergan, which, like Novartis, has an 8% return on R&D by Evans’s numbers. Gilead and Celgene, have R&D returns of 21% and 32%, respectively, so bigger returns are not impossible. And by Evans’s methods, which include measures of patents and quality of research, Allergan has the fifth-best R&D in the industry. It’s not absurd to expect that it could do better, not worse, in the future. If Valeant is at war with inefficiency, shouldn’t it buy someone inefficient?

Valeant also has some pretty laughable figures on the number of drugs developed internally at big pharma companies. They claim that only four of the fifty best-selling drugs came up that way, which is just wrong:

Valeant aims to make drug research look bad by excluding drugs from its list. Any drug invented or developed at a company that went through a merger or did a co-marketing deal doesn’t get counted, nor does any drug invented at a company Valeant has decided is not “Big Pharma.”
This leads to absurdities like saying that the blood thinner Plavix was not invented at Sanofi or that the cancer drug Gleevec was not invented at Novartis because Novartis was called Ciba-Geigy at the time. The same thing happens with Lantus, the second-best-selling drug on the list, invented at Hoechst, which is now part of Sanofi, and Prevnar 13, the vaccine invented by Wyeth that is now part of Pfizer. By any definition, these drugs were “discovered, developed, and commercialized internally by ‘Big Pharma’.”

There are plenty of other examples – see Matt’s post for more. Valeant’s bid is not catching on (yet) because Allergan’s investors are suspicious of them, and rightly so. Valeant, from what I can see, is basically a parasite on the research-driven drug industry, so to hear them going on about efficient R&D is a bit hard to take.

13 comments on “Valeant’s Misleading Case”

  1. Hap says:

    1) It’s always nice to hear about R+D and how to make it more efficient from someone who knows so much about it. (/sarcasm)
    2) Maybe Valeant’s lack of honesty ought to be a warning to their potential shareholders.

  2. Brian says:

    Hap, On your second point, Barron’s just ran a piece questioning some of Valeant’s accounting practices and suggesting that they give a misleading impression of financial health to potential shareholders.

  3. Anonymous says:

    Parasite is the best word for Valeant. And its CEO.

  4. metaphysician says:

    On one hand, it sounds like every bad snake oil pitch ever. OTOH, the FDA doesn’t give Breakthrough Therapy status every day, right?
    ( on the third hand, it *still* sounds like snake oil pitch. . . but is that maybe the journalist, not the researcher? )

  5. Chemjobber says:

    In my handle, I’ve linked the relevant Nature paper that the above article is based on. At the very least, it’s peer-reviewed science.

  6. Xchemist says:

    Gleevec wasn’t “invented” at ANY of the mentioned companies.

  7. Anonymous says:

    fix the blog..

  8. simpl re 4, 5 says:

    Life is too short to have to go back to science papers to validate articles in top newspapers.
    It is still up to the journalist’s to get the main points, and explain their relevance.
    I saw that article, got the excitement, good English, and fuzzy detail – Is a delta inhibitor the brakes on a paraglider, or some finance hedge? Is PIK3alpha related to P110delta?
    My guess was that their lone science specialist was away, and the fashion correspondent had to stand in. Move on, wait for the write-up on the small molecule lead.

  9. #6: Gleevec was synthesized at Ciba by a team lead by Nick Lydon. Then it was almost abandoned, and was saved by Brian Druker at OHSU. By any rational metric, it’s a big pharma invented drug.

  10. gbl says:

    I really hate to say this but what Valeant is doing seems to be what most life sciences companies are doing these days – Valeant does it more in the open whereas others leave employees waiting for the shoe to drop. In other words you know the beast Valeant is from the get-go. Investors have rewarded this type of behavior and even years ago many said Valeant’s business model is unsustainable. They are still around! I don’t know if this is the real future of life science going forward but from all indications, sadly, it seems to be. Somewhere over the years we lost real life science leaders at the helm to lawyers running companies and now we have ex-hedge fund managers running things. Face it, it’s not what it use to be which is a pretty sorry legacy. This is coming from someone who was very, very familiar with as Derek says, “a parasite” in the industry — Valeant.

  11. pgwu says:

    It looks like that Valeant counting is on the left side of a bell curve while that from some pharmas is on the right. One does under counting while the other over counting. How often do you hear Pharma A licenses BigCompound from Biotech B, co-markets with Pharma C. All count this in their pipelines to claim superior productivity? It is a fight between left-side badness and right-side badness. I am even more amused by the fact that Valeant was on The World’s Most Innovative Companies list at Forbes last year.

  12. Derek Freyberg says:

    @4 and others:
    I too wasn’t impressed with the Telegraph article, and unwilling to pay for the Nature article underlying it. But the Nature preview allows seeing a table, in which the lead compound appears to be idelalisib (Gilead, GS-1101, CAL-101), which seems to be on a very fast track to approval in chronic lymphocytic leukemia. Another compound was DI-3065, about which I know nothing.

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