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Valeant: Bound to be a Good Explanation, Right?

For those of you following this saga, here’s the latest from Bronte Capital, SIRF, and the Wall Street Journal on the wonderfulness that is Valeant Pharmaceuticals. Marvel at companies that aren’t supposed to be related that share phone numbers and web sites, at Valeant prescriptions being mailed all over the place, including plenty of states where their pharmacies were not even licensed to operate (via the simple expedient of pretending to be someone else), at these pharmacies not only trying to hide their Valeant associations, but being denied those licenses because no one can figure out who owns them at all, and at employees from Valeant physically working at said specialty pharmacies but under the aliases of comic-book superheroes, and no, I’m not making that last one up.

Valeant has released an 88-slide PowerPoint for its press conference today where it will attempt to explain all this. I expect the stock to hit the floor again like a frozen turkey, but who knows, maybe they’ve got a good explanation for why no investors were told about any of these tactics. Whether this turns out to be channel-stuffing, mail fraud, or what, it’s not what the stockholders thought that they were signing up for, and those investors should be pretty ticked off.

My own take on this is that Valeant’s entire business model – take on debt to buy other companies, strip out the R&D and do none of your own, and fund everything by steep price rises – has probably had the numbers run on it by others. Several times. You can probably get this sort of thing to work on a small scale, but can you run a big company that way? Perhaps not, unless you resort to the kinds of creatively aggressive tactics we’re seeing uncovered now. Viruses are small compared with cells, and remoras don’t grow to be the size of sharks. A free-riding organization like Valeant, similarly, probably has a size limit, and my guess is that they’ve been exceeding it for some time now.

13 comments on “Valeant: Bound to be a Good Explanation, Right?”

  1. Old Timer says:

    Just like some MBAs to put together a polished PowerPoint over the weekend to make things seem OK. It’s a list of talking points to keep a bunch of boneheads from going off topic and saying too much.

  2. PharmaHeretic says:

    Pfizer did (and still does) almost all the same things as Valeant is accused of. They just have many more lobbyists, more money for ‘legalized’ bribing and did not increase their prices as quickly and brazenly as Valeant..

    The difference between Valeant and any other supposedly “respectable” large pharma company is now simply one of degree, rather than their modus operandi.

  3. Magrinho says:

    A few nuggets from this morning:

    Valeant CEO Michael Pearson said the option to purchase Philidor for $0 after spending $100 million for the right is probably unusual.

    He added, “I think it is legal.” (There you have it! That means it’s legal, right?)

    Valeant’s chief compliance officer said that it’s taking the latest WSJ story outlining some new ties between Valeant and Philidor “seriously.” (good to know)

  4. me says:

    #2 – The thing people in the know tell me about Enron is that most companies now use the same tactics they did – they got caught out because they were the early-adopters.

    Reminds me of your comment.

  5. Anchor says:

    Sick and tired of coverage on Valeant…ditto on Kardashian’s too!

  6. MoMo says:

    I’m with you Anchor. Tracking all the injustices wrought by Pharma execs can cause your head to explode. PAINS too. And molecules Pharma doesn’t have, and Combichem. And unemployed chemists and target directed screening and DOS.

    There’s nothing left to blog about then. So get back to work- All of you!

  7. Bagger Vance says:

    Everyone laughs at “Atlas Shrugged” but this “looter” business model seems taken directly from its pages.

  8. DCRogers says:

    Re: “Viruses are small compared with cells”

    With the characterization of the bizarre Megaviruses, this is no longer true:

    https://en.wikipedia.org/wiki/Megavirus

    The largest clock in with genomes with 1,259,197 base pairs, an order of magnitude bigger than the smallest bacterial genomes (around 130,000 base pairs). Evidence points to them possibly being older than eukaryotic cells themselves; indeed, one theory postulates eukaryotes evolved from a pre-eukaryotic cell being infected with a giant virus who kicked out the original nucleus and took over.

  9. Simon says:

    DCRoger, that Megavirus is still much smaller than any human cell. 1.3 million bases? Every human sperm (the smallest human cell) has over 3 billion, and they are ten times the diameter (5 uM vs. ~0.5 uM).

  10. John Wayne says:

    Like most folks who work in research, it is fun when a company like Valeant seems to get what it deserves. I’m having a hard time actually thinking that anything has changed; is this just an example of one corporate pirate (Valeant) getting jumped by another corporate pirate (short sellers)?

  11. Hap says:

    That doesn’t seem quite like an Alien vs. Predator scenario – other people performing than “naked shorts”(whose legality I don’t understand), the short sellers aren’t mostly lying to anyone, or at least not as often as, say, the management of small biotechs. If they can find out true stuff about companies lying to their investors (and everyone else), and get it public. I’m pretty happy with it.

    It also seems like one of those times where if the words “It’s not what it looks like” (or their equivalent) come out of your mouth, 1) the appropriate response is something like “What exactly is it, then?” (roughly, from Bastard Out Of Carolina) and 2) it probably is as bad as it looks, or worse.

  12. Anon says:

    Would be interested to hear what people make of this explanation of Valeant’s case:

    http://www.forbes.com/sites/stephenbrozak/2015/10/29/ackman-to-the-rescue-can-he-make-the-case-for-valeant/

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