Valeant Pharmaceuticals: The Rise and Fall
Today's topic of choice, a pharmaceutical company whose rise to the top was almost as climactic as their downfall. In our current society morals and ethics seem to be a relic of the past. This story highlights current questionable business practices and its consequences.
As defined by Wikipedia, Price gouging is a pejorative term referring to when a seller spikes the prices of goods, services or commodities to a level much higher than is considered reasonable or fair and is considered exploitative, potentially to an unethical extent. On average Valent was hiking their prices up on medications by 66%. This was just the surface of the rabbit hole.
A specific example is a drug called Syprhirne. For the customers taking the medication, it is a matter of life or death. It is absolutely imperative that consumers take this drug. The monthly price rose from $650 to over $21,000! So you may ask yourself how has no one caught on? Surely consumers would notice their monthly price of medication rising immensely. This is a one-word answer, Insurance.
Valeant knew that consumers would catch on if they were paying out of pocket, so they stuck the insane bill to the insurance companies. Pretty soon the insurance companies caught on and started denying prescriptions. At this point, Valeant created a network of fake pharmacies, using fictional characters for their names. As soon as insurance stopped filling a companies scripts, the simply created a new one. Valeant Pharmaceuticals is the textbook definition of a house of cards.
Since 2008 US insurance premiums have gone up 43%, and Valeant isn't the only company doing this. At the end of the day, we all suffer. When the house fell, it fell hard. Stocks in Valeant dropped 59% in one month, losing 26 billion in value. The stock price fell to 8$ a share, that is 97% from their peak.
As for legal repercussions, there were literally none. Micael Pearson hasn't faced a single criminal charge. If that isn't sickening enough, Valeant never dropped their prices, they are the exact same price today. I am not here to preach about ethics and business practice, rather illuminate current circumstances. If you are further interested in the topic there is a great documentary on Netflix that goes into great detail Netflix: Dirty Money, and if you are further inclined the link provided will show you what they are up to today Valeant Quarterly Loss.
In 2008 Valeant was a struggling pharma company worth $2.1 billion. You could buy stock in this California based company for $13.24, at the height of there stint in 2015 the stock rose to an astonishing $252.14. To put in perspective in 2015 they were worth 78 billion dollars. If you are interested to see their current stock price go to Valeant Stock Price.
Deemed by Wall Street as "smart money" it appeared that you literally could not lose investing in Valeant. In fact, Hedge Fund broker Bill Ackman quietly acquired massive stock in the company which later turned out to be a massive mistake. So what was the secret behind Valeant?
The process was simple, CEO Michael Pearson introduced a new business model that "revolutionized" the pharmaceutical industries. On average Pharma companies spend 18% of their funds on R&D (Research and Development). Pearson had a different idea, he believed that R&D was a waste of money and cut the department down to 3%. He believed that the money saved from cutting R&D should be used towards acquisitions of smaller companies and that is exactly what they did.
From 2008 - 2015 Valeant acquired over 100+ companies. Anyone with common sense should realize that these are big-ticket purchases. So the question then becomes where is the money coming from? The answer is simple, price gouging.
A specific example is a drug called Syprhirne. For the customers taking the medication, it is a matter of life or death. It is absolutely imperative that consumers take this drug. The monthly price rose from $650 to over $21,000! So you may ask yourself how has no one caught on? Surely consumers would notice their monthly price of medication rising immensely. This is a one-word answer, Insurance.
Valeant knew that consumers would catch on if they were paying out of pocket, so they stuck the insane bill to the insurance companies. Pretty soon the insurance companies caught on and started denying prescriptions. At this point, Valeant created a network of fake pharmacies, using fictional characters for their names. As soon as insurance stopped filling a companies scripts, the simply created a new one. Valeant Pharmaceuticals is the textbook definition of a house of cards.
Since 2008 US insurance premiums have gone up 43%, and Valeant isn't the only company doing this. At the end of the day, we all suffer. When the house fell, it fell hard. Stocks in Valeant dropped 59% in one month, losing 26 billion in value. The stock price fell to 8$ a share, that is 97% from their peak.
As for legal repercussions, there were literally none. Micael Pearson hasn't faced a single criminal charge. If that isn't sickening enough, Valeant never dropped their prices, they are the exact same price today. I am not here to preach about ethics and business practice, rather illuminate current circumstances. If you are further interested in the topic there is a great documentary on Netflix that goes into great detail Netflix: Dirty Money, and if you are further inclined the link provided will show you what they are up to today Valeant Quarterly Loss.
Comments
Post a Comment