Cantillon: Valeant no different to other companies

Watching the implosion of once rapidly expanding drug company Valeant has been akin to witnessing a car crash in slow motion. And, as with a crash, the collateral damage is likely to have far more impact than the aggressively acquisitive Canadian pharma group.

Valeant made its name by buying up companies and leveraging their assets. Research and development was almost anathema to it: the prime focus was on maximising profit on often older drugs.

It seems strange now but it was precisely this approach that made the company and its exuberant leader Mike Pearson stock market darlings. At the time, any voices in the industry urging caution were more concerned about the prospect of Valeant running the rule over them than about the basic business model.

Now, however, they have been quick to rush to the sidelines, shaking their heads and stressing how far removed the Valeant model is from their businesses.

But is it really? Pharma companies of all sizes make great play of the focus on science and on delivering solutions for patients. To hear them speak, you’d imagine they were not-for-profits. Yet we know this is far from the truth.

The profits associated with blockbuster drugs are enormous, far outweighing the costs and, looking at the performance of the major players down the years, comfortably accommodating losses incurred on therapies that never make it to market.

This has become even more the case recently, with Big Pharma effectively outsourcing much of the risky early stage development of drugs. In general, they will establish a foothold with an minimal early stage investment, putting themselves in the front seat for a potential buyout when a drug’s potential is proven.

Even the pursuit of therapies for ever more niche conditions has not dented profit. As potential patient numbers fall, so price per unit rises – at times to exorbitant rates that place massive pressure on the budgets of healthcare providers.

Pearson always made it clear Valeant had an obligation to shareholders to wring the maximum profit out of each drug.

All pharma companies have shareholders and are presumably in the business of making a return. The pious posturing about delivering for patients extends only to the development of the medication and bringing it to market: thereafter, in general, the profit motive kicks in.

Valeant is not that different to the industry in general. Perhaps that is why the sector is rushing to create clear blue water around it.