BUSI 536 - Module 7 - Final Research Paper.docx

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Running Header: VALEANT PHARMACEUTICALS: M&A LESSONS THAT HEALTHCARE COULD LEARN FROM 1 Valeant Pharmaceuticals: M&A lessons that healthcare could learn from Liberty University
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VALEANT PHARMACEUTICALS: M&A LESSONS THAT HEALTHCARE COULD LEARN FROM 2 Abstract Valeant Pharmaceuticals, a Quebec-based organization, begun exercising what we know from the baseball terms, as the “Moneyball” in its mergers and acquisitions (M&A) tactics in the pharmaceutical industry. Valeant was on a mission to write a new chapter in the M&A methods books, applying a non-traditional way of acquiring other business. Under the leadership of its CEO Michael Person, Valeant scrapped any research and development (R&D) budgets, focusing its operations on acquiring under-valued products available in the market. “Pearson had a new plan: Create a drug giant that focused on distribution and let someone else do the research.” [Ste151]. After the completion of an acquisition, Valeant found itself in the power seat, increasing its revenue not by the intake of new customers but by hiking the prices of its drugs to such levels that it was generating more cash even with fewer customers in its pipeline. Valeant approached its growth through several hostile-driven attempts in its M&A strategy that was not always successful. An example of that was in March of 2011 when Valeant unveiled a $5.7 billion hostile bid for Cephalon [Wil14]. However, its attempt to buy Allergan with the help of its “activist investor William Ackman’s Pershing Square Capital Management hedge fund” became a public spectacle as its hostile M&A methods created more shorting than investing on Valeant’s stock [Ran16]. Valeant followed an M&A activity that did not create long-term value for its shareholders but instead short-term returns through segmented product monopolies, from which the federal government failed to protect the market. Following, the researcher will present and analyze the M&A approach of Valeant Pharmaceuticals and the innovative financial thinking behind such tactics which can act as an excellent lesson for the tail end of the healthcare industry, the medical providers. Meanwhile, we will utilize several of the lessons learned from Gaughan
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VALEANT PHARMACEUTICALS: M&A LESSONS THAT HEALTHCARE COULD LEARN FROM 3 [Pat18] on hostile takeovers, tax consequences, corporate restructuring, and hedge funds as activist investors. Pharmaceutical Research & Development (R&D) Spending According to research published at the Journal of Translational Medicine between 2006 and 2015, R&D spending increased from $108 to $104 billion [Ale16]. For newly startups, R&D is the most substantial cost on their income statement sheet and depend on raising cash from hedge funds to sustain continuous research operations. The R&D is the backbone of pharmaceutical innovation, and while it requires rigorous initial funding, it can yield tremendous profits for the organization. Just in 2015, worldwide sales of pharmaceutical products reached a staggering $1 trillion, not accounting for the impact those drugs have on the consumer [Bar17].
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Christopher Reinemann
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