Quick Take: The Problem with Valeant

On 29 February, Valeant Pharmaceuticals International Inc. (NYSE: VRX) admitted that it was under more regulator investigations:

In response to media inquiries, Valeant confirmed that it has several ongoing investigations, including investigations by the US Attorney’s Offices for Massachusetts and the Southern District of New York, the SEC, and Congress. With respect to the SEC investigation the Company confirmed that it received a subpoena from the SEC in the fourth quarter of 2015 and, in the normal course, would have included this disclosure in its 2015 10-K. We do not have further detail to provide at this time,” according to a company press release.

The stock price promptly plummeted and the company quickly became fodder for Hilary Clinton’s new crusade. The company’s website slogan, “Focus on Valeant“, has become a self-fulfilling prophecy but in ways that the company is unlikely to be happy about.

What is essentially wrong with Valeant is its business model. A business strategy that relies on buying companies and jacking up prices of essential products is such a short-term strategy but is so unsustainable in the long haul that it amazes me that the market continues to give Valeant the benefit of the doubt. Valeant has been acting like a holding company and a loan shark in an industry that owes its success to research and innovation. And unless it is able to fix this fundamental problem, the company is not going to see an end to its woes.

 

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