How a drug company goes septic

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"The drama at Valeant just won't stop," said Erik Holm at The Wall Street Journal. The embattled drug giant, once a Wall Street darling, is in the midst of a full-fledged meltdown. Over the past two weeks, Valeant has slashed its earnings forecast, warned that it could default on roughly $30 billion of debt, ousted its CEO, and accused its former CFO of "improper conduct." All the while, Valeant shares, which rose fivefold between 2011 and 2014, have dropped off a cliff. "America hasn't had a spectacular corporate disaster since Lehman Brothers in 2008," said The Economist. But the implosion at Valeant checks all the boxes: shady accounting practices, a weak board, mountains of debt, and absurdly paid managers "with a mentality of denial." Instead of focusing on developing its own drugs, Valeant relied on "buying other drug firms, cutting costs, and yanking up prices." Investors loved the lean, profit-driven approach, but "a strategy based on squeezing customers was bound to encounter political hostility." Federal prosecutors are now looking into the company's practices. Valeant's shares have dropped almost 90 percent from their August high, a $75 billion loss for shareholders.

"Now that Valeant stock is a smoldering wreck, what lessons should the rest of the $600 billion pharmaceutical business learn?" asked Matthew Herper at Forbes. Valeant correctly recognized that pharma companies waste money on development, spending at least $2.5 billion to invent each new drug. But "not putting money into innovation was as much a mistake as pretending you can invent everything yourself." Valeant never developed its own signature product, outside of a toenail fungus drug called Jublia that can retail for as much as $1,000 a bottle. Meanwhile, Valeant went on a buying binge to fuel growth — doing $35 billion worth of deals since 2010 — and often overpaid for mediocre drugs like a "marginally effective" women's libido pill. Then there's Valeant's "crass realization" that most insurers will continue to pay even when drug prices are jacked up. Politicians are now vowing to crack down on price gouging. The warning for drug firms: "You can always raise the price of a new drug, until you can't raise the price on any of them."

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Valeant is the Icarus of the drug industry, said Max Nisen at Bloomberg. Its rise was defined hubris, like when it raised the price of heart drug Isuprel by 525 percent immediately after acquiring it. But even when the company's strategy faced skepticism, Valeant kept putting out bullish forecasts, giving no indication that a "staggering, humiliating billion-dollar-plus cut to its 2016 revenue guidance" was in the works. When the news dropped in March, it "dealt a huge blow to the company's already badly eroded credibility." Valeant's old business model is kaput, said Gretchen Morgenson at The New York Times. The firm now says it has canceled "almost all planned price increases" for drugs in its portfolio. Instead, Valeant will boost spending on R&D, "making it more like many of its pharmaceutical company peers." Even so, the road ahead looks bleak, with the company worth less than a third of its total debt. How Valeant will pay the bills now that its old playbook is exhausted is anybody's guess.