Valeant: Paying the Price for Hiking the Price
In recent years, the Laval-based pharmaceutical company, Valeant, showed strong growth and generated high shareholder returns. In 2014 and 2015, it prided itself on its unconventional sales approach based on acquisitions. This period saw earnings and market quotes soar.
The Failure :
In 2016, Valeant came under investigation for its pricing practices. The report found that the company had first determined revenue targets, then set drug prices to reach these targets. To maximize profits before the advent of generic equivalents, Valeant inflated the prices of these lifesaving products and treatments by 200% to 800%.
By selling these drugs to hospitals, generally less rigorous in terms of prices, Valeant and its exclusive distributor, Philidor, took advantage of a favourable context. This is obviously a question of ethics and questionable practices. The outcome: loss of trust in the company and its directors, and plummeting stock prices.
The Moral :
By aiming for profits at any price, a company can shoot itself in the foot. Pricing is a reflection of trust between a company and its market. Once this relationship of trust has been broken, it’s hard to recover. Valeant tried to smooth things over by naming new directors and lowering prices. But is this too little, too late? It’s better to play fair from the start than to try to pick up the pieces.
Image Source : Reuters