Allergan: Valeant's business model is unsustainable

IRVINE, Calif. — Allergan issued a statement Monday, reiterating the company's concern for what it calls Valeant Pharmaceuticals’ “unsustainable business model, which relies on serial acquisitions and cost reductions, as opposed to top-line revenue growth and operational excellence,” the company stated.

The statement, issued via BusinessWire, also listed a number of financial analysts and market watchers that Allergan noted have “also publicly expressed similar views,” including:
 
• John Hempton, chief investment officer, Bronte Capital: "There is a possibility that the whole Valeant exercise is something from the Wizard of Oz,” Hempton noted in a June 13 blog entry on the company’s website. “Profits are going up nicely if you pay no attention to that man behind the curtain — the man being the large restructuring and one-time items."

• Vicki Bryan, senior high yield analyst, Gimme Credit, told Bloomberg reporters, for a May 27 article: "Valeant's strategy depends on people continuing to drink this Kool Aid it's serving. … They have to keep buying at a heavier and heavier and more expensive pace to keep this up. What happens when they can't? There's no inherent growth, and the debt side of this is a very big part of the story that the stock market is ignoring."
 
• Jim Chanos, president and founder, Kynikos Associates, noted for a May 15 CNBC Fast Money Halftime Report: "We're short because it's a roll-up, and roll-ups present a unique set of problems. Roll-ups are generally accounting-driven, and we certainly think that's the case in Valeant. We think Valeant is playing some very aggressive accounting games when they buy companies, write down the assets. But really, for us, and we were short before the Allergan announcement, a roll-up is a roll-up, and you have to analyze a company that's not growing organically and has to deliver value by doing bigger and bigger acquisitions, and usually the companies do an acquisition too far.”
 
• Matthew Herper, senior editor, Forbes, wrote in a June 12 article: "… [Valeant's] treatment of figures relating to the industry's R&D productivity is so indefensible as to beg the question of whether its executives can really command the facts they are using, or whether they really understand the trends on which they say they are basing their business. A one-hour call with four of Valeant's top executives last night did not convince me otherwise. … By picking only the largest companies, Valeant gets to not include Allergan, which, like Novartis, has an 8% return on R&D by Evans's numbers. … If Valeant is at war with inefficiency, shouldn't it buy someone inefficient?" 

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