The last time Pharm Exec covered Valeant Pharmaceuticals, it was in 2005, and things were looking good for the company. It had a new name, and a sleek new organization, lighter than the old by 8,000 employees. New CEO Timothy Tyson had created a talented and enthusiastic new management team. A new strategy was in place. And Viramidine, a replacement drug for Valeant’s hepatitis-C treatment, ribavirin (marketed by Schering-Plough under the name Rebetol), seemed just around the corner.
Late last week, the company announced that it was laying off roughly half of its workforce. Tyson is gone. And Viramidine, now known as Taribavirin is, well, just around the corner. What went wrong?
Valeant looked reasonably healthy at the time, but the numbers concealed a fundamental problem: It was using revenue from ribavirin to make ends meet, and ribavirin had just gone off patent. “The company had about $700 million in sales,” Tyson told Pharm Exec’s Sara Calabro, “and $300 million in royalties. Take the $300 million in royalties away and look at the next level: That $700 million in sales was costing over $900 million to generate. It was losing money.”
Tyson took the company from 12,000 employees to 3,700. He went from operating 37 plants to running eight. He put Six Sigma in place and saved $10 million the first year.
Tyson left in place Valeant’s ambitions to be a global company. The company was active in dozens of countries worldwide, and if anything, it ramped up its global presence to prepare for the launch of Viramidine, a pro-drug of ribavirin that was expected to show the same positive effects while eliminating the troublesome anemia that afflicted many hep-C patients in treatment. The company was in too many geographies, too many clinical areas, and it had no big productsâ€”its biggest seller was only $50 million. And viramidine ran into troubles in a Phase III trial.
The result: though revenues continued to grow, and expenses came down a bit, Valeant found itself at the end of 2007 in roughly the same state it was in 2005. New CEO J. Michael Pearson discussed Valeant’s situation in a conference call in March. He painted a grim picture:
- Valeant had almost 1,800 stock-keeping units (SKUs) and 343 brands. But 30 percent of the products accounted for 90 percent of the revenue.
- Two-thirds of sales were in five markets. Sales in most markets (including Japan and the European markets) were below $25 millionâ€”and they were mostly just breaking even.
- Though Valeant had eliminated many of its factories, it was stuck with a network of more than 90 suppliers and an unmanageably complex supply chain. Partly for that reason, G&A expense for the company was 13 percent, which Pearson labeled “unacceptable in a company of our size.”
- Focus on North America, Brazil, and Australia.
- Limit the company’s clinical areas to dermatology and neurology.
- Divest roughly three-quarters of its products.
- Sell off or arrange IPOs for individual business unitsâ€”especially its Polish branded generic operation.
- Find a partner for Taribavirin, which, back in Phase IIB, is once again showing great promise.
Pearson expects revenue to drop in the short term, but he’s got one big advantage: Ribavirin, though revenue is fading fast, isn’t gone yet. It has covered for strategic errors in the past. Maybe it can provide a bit of cushion for Valeant’s latest iteration.
Pearson reports on Q1 at 10 AM Wednesday, May 7. You can hear it here.