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BLOG: Valeant gets crushed
Man, how smart does David Pyott look right about now?
Valeant’s CEO, Michael Pearson, gave his first investor’s conference call on Tuesday after returning from a medical sabbatical. According to the Wall Street Journal and others, it was just one stink bomb after another. Valeant will not only badly miss its revenue projections and change its business model, but there is also a possibility that it will default on some or all of its $30 billion debt obligations. It’s hard to see how yesterday could have been any worse.
Mr. Pearson became CEO of Valeant and built a company by acquiring other smaller companies in eye care, dermatology and others. Through a combination of aggressive cost cutting (notably in R&D) and price increases for medicines with little competition, Pearson created a stock market juggernaut. Seeking a larger synergy in eye care, he teamed with activist investor Bill Ackman and launched a hostile takeover offer for Allergan.
Enter David Pyott, at the time chairman and CEO of Allergan. With eyes undazzled by Valeant’s meteoric stock price, Mr. Pyott stood along the parade route and declared that the Valeant business model had no clothes. He rebuffed Pearson and Ackman and launched a counterattack, which resulted in Allergan’s merger with Actavis. A glance at Valeant’s stock chart shows a steady decline starting when its Allergan gambit was thwarted.
Why does this matter to us? Valeant still owns Bausch + Lomb, and Bausch is likely on the block as of yesterday. Mr. Ackman is certainly making that kind of noise. This is important. Bausch has a quiver of medicines that are among the best we have, notably the Lotemax (loteprednol etabonate ophthalmic suspension) franchise in dry eye. The surgical division has been kicking — well, you know — and is definitely on the rise. Who’s a buyer and why? That, boys and girls, is going to be a fascinating parlor game for us to play over dinner in New Orleans.
Stay tuned; this is gonna get interesting.
Disclosure: White reports he is a consultant for Bausch + Lomb, Allergan, Shire and Eyemaginations; is on the speakers board for Bausch + Lomb, Allergan and Shire; and has a financial interest in TearScience.