Valeant consistently ranked as one of Wall Street’s most popular stocks for several years. But in 2016, after pernicious accusations that Valeant’s success was based on price gouging, the stock plummeted by a staggering 60 percent in a few months.
The real story:
When the stock was worth $260, the CEO came up with a new model to cut price and inefficiencies. Valeant started buying up other drug companies by taking on debt to purchase it and then implement huge drug price increase to generate lots of income — a kind of get-rich-quick scheme and at the same time reducing development staff and research budgets.
In 2015, Sen. Bernie Sanders and Congressman instigated an investigation & questioned Valeant on the two commonly used heart drugs. This sparked a wider investigation of Valeant’s drug price strategy.
An analyst found that Valeant had hiked up the price of 54 other drugs by an average of 66 percent in 2015 alone. The company maintains that its pricing strategy isn’t at all nefarious — it simply buys drugs that are mispriced and then re-prices them to reflect their market value.
On the same day at Pearson’s press conference, in a dramatic twist of events, the Southern Investigative Reporting Foundation released information detailing unusual ties between Valeant and Philidor. This sparked further allegations that Valeant had a network of phantom captive pharmacies that it used to book fake sales and was actively engaged in accounting fraud.
Valeant eventually revealed that it did buy Philidor for $100 million, but company leaders maintained that the operations of the two companies were completely separate and that they had done absolutely nothing wrong. Still, information emerged suggesting that Philidor might have altered prescriptions to push Valeant’s pricey drugs on patients, rather than more affordable generic options.
Soon the price fell 16%, as Valeant announced its intention to completely severe ties with Philidor. It was also identified that Valeant revealed that it had “incorrectly” booked around $58 million in revenue earned i.e. booked the revenue before the products were actually sold.
The problem with a business culture of aggressive and untimely strategies in which shareholders are addicted to rapid growth in which case ethics gets pushed to the side. Quick success is so often built on smoke and mirrors. When it acquired two heart drugs, Nitropress, and Isuprel, and jacked up the prices by 525 percent and 212 percent, It was this poor business model that ultimately fuelled Valeant’s demise.
How can this be prevented in the future?
It is an example of the failure of corporate governance — along with WorldCom, Enron, and on and on. There needs to be shifted from a general culture of aggression in business to one that values sustainable growth that takes into consideration public interest as well as shareholder value.