Valeant Pharmaceuticals International: An Extended Look

Valeant Pharmaceuticals is the hottest stock inward the hottest sector (pharmaceuticals in addition to biotech). It also has the strangest trace of piece of employment concern model: it acquires existing companies, strips them of most of their interrogation in addition to evolution in addition to a large proportion of their other staff in addition to extracts huge margins.

As John Gapper observed inward the FT: if the entire manufacture adopted Valeant’s approach, drug regain would grind to a halt.

Gapper's article (accurately) stated:

Valeant’s trace of piece of employment concern model is equally unproblematic equally its accounting in addition to taxation construction are complex. While at McKinsey, Mr Pearson [the Valeant CEO] concluded that the manufacture he advised was spendthrift, non exclusively inward the sums it spent on headquarters in addition to staff merely inward its investment inward drug discovery. Employing scientists to search for novel drugs was a waste product of coin because they ofttimes failed.

When he got the conduct a opportunity to position his ideas into do he cutting Valeant’s interrogation to iii per cent of revenues – compared amongst virtually xix per cent at large pharma companies – in addition to acquired products past times buying other companies amongst debt. Valeant has taken over to a greater extent than than 35 companies since 2008, including Bausch + Lomb, which it acquired for $8.7bn terminal year.

To the extent that the stock cost does the analysis this has been an outrageous success. The marketplace clearly thinks Mr Pearson has the goods. This is ane of those charts that is in addition to so adept it makes no feel to persuasion it inward anything other than log-scale. 

The marketplace cap is straight off over $43 billion. If you lot add together inward the internet debt the venture value approaches $60 billion. This is ane of the largest companies inward the infinite past times venture value. Enterprise value is over x times historic sales (though somewhat less than that relative to the electrical flow sales run-rate). Whatever: this is very highly valued.

I am notwithstanding a disagreeable person. I don't await at charts much - in addition to my science sets are accounting in addition to taxation driven. So I am inclined to own got the accounting (and hopefully tax) issues caput on in addition to thence assess Mr Pearson's achievement. 

Alas - in addition to I stating this inward advance - this volition hold upwards ane of the to a greater extent than complicated projects this weblog has in addition to I own got piddling thought how many posts this volition take. I mightiness larn a few things along the agency too. So amongst the adjacent shipping I volition kickoff you lot on the journeying proper. Hopefully, honey readers, this volition hold upwards useful for you lot too.

John

PS: In the interests of disclosure I should permit you lot know I own got done plenty travel inward advance to own got a seat here. Short.