WEBVTT 00:00:00.000 --> 00:00:01.600 Welcome back to the Deep Dive. I want you to 00:00:01.600 --> 00:00:05.219 do something for me. Just mentally walk over 00:00:05.219 --> 00:00:08.099 to your bathroom. Okay. I'm there. And open up 00:00:08.099 --> 00:00:10.400 that medicine cabinet. You know the one. It's 00:00:10.400 --> 00:00:12.400 probably a bit cluttered. There's like some old 00:00:12.400 --> 00:00:14.199 sunscreen, maybe some toothpaste that's seen 00:00:14.199 --> 00:00:18.199 better days. And almost certainly a bottle of 00:00:18.199 --> 00:00:21.219 contact lens solution. Or some eye drops. Exactly. 00:00:21.379 --> 00:00:23.600 The stuff you see and use every single day and 00:00:23.600 --> 00:00:25.420 you just, you never think about it. It's just... 00:00:25.719 --> 00:00:28.079 It's part of the furniture. It's safe. It's boring. 00:00:28.280 --> 00:00:30.820 It is boring. But today we're going to pick up 00:00:30.820 --> 00:00:33.299 one of those boring bottles, specifically anything 00:00:33.299 --> 00:00:36.420 made by a company called Bausch Health. And we're 00:00:36.420 --> 00:00:39.159 going to find out that it is, in fact, an artifact 00:00:39.159 --> 00:00:41.719 from one of the most, I mean, one of the most 00:00:41.719 --> 00:00:45.039 insane corporate thrillers of the last 20 years. 00:00:45.259 --> 00:00:47.539 It really is. I mean, this is a story that has 00:00:47.539 --> 00:00:50.060 everything. It's got a garage startup in Pasadena, 00:00:50.159 --> 00:00:52.500 for real. It's got something called a phantom 00:00:52.500 --> 00:00:55.560 pharmacy, which sounds like, you know. A front 00:00:55.560 --> 00:00:58.340 for a spy ring. It really does. Accusations of 00:00:58.340 --> 00:01:00.939 being the pharmaceutical Enron. And a stock chart 00:01:00.939 --> 00:01:02.579 that doesn't look like a business graph. It looks 00:01:02.579 --> 00:01:04.840 like a seismograph during an earthquake. It's 00:01:04.840 --> 00:01:07.359 just a cliff. And to really understand that bottle 00:01:07.359 --> 00:01:12.099 in your hand today, here in February 2026, you 00:01:12.099 --> 00:01:15.079 have to speak its forbidden name. The name that 00:01:15.079 --> 00:01:19.140 this company has tried so, so hard to make everyone 00:01:19.140 --> 00:01:22.200 forget. Valent Pharmaceuticals. Ugh, just saying 00:01:22.200 --> 00:01:25.060 it, it feels heavy, doesn't it? If you were anywhere 00:01:25.060 --> 00:01:27.939 near Wall Street or health care around 2015, 00:01:28.260 --> 00:01:30.680 that name, it brings back some memories. Oh, 00:01:30.680 --> 00:01:32.799 absolutely. It triggers a sort of a visceral 00:01:32.799 --> 00:01:36.340 reaction. This company was the absolute darling 00:01:36.340 --> 00:01:39.140 of a market. For a very brief shining moment, 00:01:39.299 --> 00:01:41.760 it was the most valuable company in all of Canada. 00:01:41.900 --> 00:01:44.719 It was a hedge fund super stock. And then? And 00:01:44.719 --> 00:01:46.819 then it became a pariah, a total outcast. It 00:01:46.819 --> 00:01:49.579 lost 90 percent of its value. It destroyed careers. 00:01:50.210 --> 00:01:52.969 reputations it dragged billionaires and politicians 00:01:52.969 --> 00:01:54.750 right down into the mud with it but that's the 00:01:54.750 --> 00:01:56.790 mission for today's deep dive we're not just 00:01:56.790 --> 00:01:59.329 here to you know perform an autopsy on a dead 00:01:59.329 --> 00:02:02.209 company because the company isn't dead no not 00:02:02.209 --> 00:02:05.390 at all it survived it survived it morphed it 00:02:05.390 --> 00:02:09.830 became bausch health so the question is how how 00:02:09.830 --> 00:02:13.419 does a company go from that humble garage to 00:02:13.419 --> 00:02:15.879 being the main villain in a Netflix documentary 00:02:15.879 --> 00:02:18.800 and then plows its way back to being this stable, 00:02:19.340 --> 00:02:23.159 quiet, pharmaceutical giant launching new acne 00:02:23.159 --> 00:02:26.580 creams in 2026. And it matters. The why it matters 00:02:26.580 --> 00:02:30.039 factor here is huge. This story, the rise and 00:02:30.039 --> 00:02:32.479 fall of Valiant, it actually changed the rules 00:02:32.479 --> 00:02:35.340 of the game. It fundamentally altered how Washington 00:02:35.340 --> 00:02:37.900 scrutinizes drug prices. It changed how investors 00:02:37.900 --> 00:02:40.189 look at corporate debt. and frankly, corporate 00:02:40.189 --> 00:02:42.210 ethics. So whether you're an investor trying 00:02:42.210 --> 00:02:44.349 to spot the next red flag or you're just someone, 00:02:44.449 --> 00:02:46.150 you know, paying a copay at the pharmacy, the 00:02:46.150 --> 00:02:47.969 ghost of Valiant is still out there and it's 00:02:47.969 --> 00:02:49.710 impacting your wallet right now. It really is. 00:02:49.830 --> 00:02:51.530 So let's get into it. We've got a mountain of 00:02:51.530 --> 00:02:53.830 sources here. We're talking SEC filings, court 00:02:53.830 --> 00:02:55.710 documents, Senate hearing transcripts, the whole 00:02:55.710 --> 00:02:57.530 nine yards. We're going to rewind the tape all 00:02:57.530 --> 00:03:02.050 the way back. To the beginning, 1959, the panaceas. 00:03:02.560 --> 00:03:04.680 I love that, the Panitch years, so picture it. 00:03:05.240 --> 00:03:09.000 1959, America is all about tail fins on cars, 00:03:09.139 --> 00:03:11.819 the space race is just getting started, and in 00:03:11.819 --> 00:03:14.680 a garage in Pasadena, California, there's a man 00:03:14.680 --> 00:03:18.379 named Melon Panitch. Melon Panitch is a character 00:03:18.379 --> 00:03:20.879 straight out of a novel. He was a Serbian immigrant, 00:03:21.120 --> 00:03:23.400 a former professional cyclist, and a chemist. 00:03:23.599 --> 00:03:26.560 And get this, he would eventually go on to become 00:03:26.560 --> 00:03:28.740 the prime minister of Yugoslavia. Wait, what? 00:03:28.939 --> 00:03:31.379 In the early 90s. while he was still running 00:03:31.379 --> 00:03:34.199 the company. He was the CEO of a major U .S. 00:03:34.199 --> 00:03:36.340 pharmaceutical company and the prime minister 00:03:36.340 --> 00:03:38.659 of a country at the same time. At the same time. 00:03:38.759 --> 00:03:42.080 The man was, let's say, ambitious. But back in 00:03:42.080 --> 00:03:44.759 1959, he was just a guy with a chemistry degree 00:03:44.759 --> 00:03:47.699 in a garage. And he starts a company with a name 00:03:47.699 --> 00:03:49.439 that sounds like it's from a James Bond movie. 00:03:49.580 --> 00:03:51.860 International Chemical and Nuclear Corporation. 00:03:52.259 --> 00:03:55.789 ICN. It definitely projects a certain... Gravitas. 00:03:55.930 --> 00:03:58.009 But for a long, long time, this was a legitimate 00:03:58.009 --> 00:04:00.310 business, right? This wasn't some financial scheme. 00:04:00.409 --> 00:04:02.810 They made things. Oh, absolutely. They had a 00:04:02.810 --> 00:04:05.889 massive, massive hit with a drug called ribavirin. 00:04:06.229 --> 00:04:08.969 If you know anyone who battled hepatitis C back 00:04:08.969 --> 00:04:12.490 in the 90s or the early 2000s, they almost certainly 00:04:12.490 --> 00:04:14.650 took ribavirin. It became the global standard 00:04:14.650 --> 00:04:17.089 of care. So they had a real scientific pedigree. 00:04:17.149 --> 00:04:18.730 This wasn't just smoke and mirrors. They were 00:04:18.730 --> 00:04:20.850 making drugs that actually saved people's lives. 00:04:21.029 --> 00:04:23.870 For sure. And Panage, he ran the show for 43 00:04:23.870 --> 00:04:27.110 years. 43 years. That's an eternity for a CEO. 00:04:27.430 --> 00:04:30.110 It really is. He finally steps down in June of 00:04:30.110 --> 00:04:33.310 2002. And this is where the story starts to shift. 00:04:33.589 --> 00:04:35.790 The company's identity begins to get a little 00:04:35.790 --> 00:04:39.689 blurry. In 2003, the new leadership decides international 00:04:39.689 --> 00:04:42.810 chemical and nuclear sounds a bit too, you know. 00:04:42.850 --> 00:04:45.170 A bit too Cold War. Exactly. A little scary. 00:04:45.310 --> 00:04:47.910 So they rebrand. And the name they choose is 00:04:47.910 --> 00:04:49.990 Valiant Pharmaceuticals. And there it is. The 00:04:49.990 --> 00:04:52.449 name is born. The name is born. But the beast 00:04:52.449 --> 00:04:54.589 that we now associate with that name, the monster 00:04:54.589 --> 00:04:56.990 of Wall Street, that wasn't created until a pivotal 00:04:56.990 --> 00:04:59.790 moment in 2010. The merger. The merger with a 00:04:59.790 --> 00:05:02.629 Canadian company called BioVale. Now, corporate 00:05:02.629 --> 00:05:04.389 mergers happen all the time. They're usually 00:05:04.389 --> 00:05:06.569 pretty boring, just a lot of press releases and 00:05:06.569 --> 00:05:10.689 synergy talk. Why was this specific one the catalyst 00:05:10.689 --> 00:05:13.670 for the absolute chaos that followed? Because 00:05:13.670 --> 00:05:15.829 it wasn't really about the science or the drugs. 00:05:16.029 --> 00:05:20.129 It was about taxes and it was about a man. The 00:05:20.129 --> 00:05:23.089 transaction was a classic tax inversion. Okay. 00:05:23.129 --> 00:05:25.290 We hear that term a lot in business news, tax 00:05:25.290 --> 00:05:27.430 inversion. Can you break that down for us? What 00:05:27.430 --> 00:05:30.290 does that actually mean? So in this deal, Valant 00:05:30.290 --> 00:05:32.810 was clearly the bigger, more dominant company. 00:05:33.069 --> 00:05:35.250 They were the ones, for all intents and purposes, 00:05:35.389 --> 00:05:37.970 buying BioVale. Okay. But BioVale was based in 00:05:37.970 --> 00:05:40.889 Canada. So by structuring the merger in a very 00:05:40.889 --> 00:05:44.649 specific... technical way, the new combined company 00:05:44.649 --> 00:05:47.709 could legally claim its headquarters was in Canada, 00:05:47.850 --> 00:05:50.149 Laval, Quebec, to be exact, even though Vallant 00:05:50.149 --> 00:05:51.610 was the one in the driver's seat. Even though 00:05:51.610 --> 00:05:53.550 the real bosses and most of the operations were 00:05:53.550 --> 00:05:56.170 still in the U .S. Pretty much, yes. The operational 00:05:56.170 --> 00:05:58.290 heart of the company remained in Bridgewater, 00:05:58.430 --> 00:06:02.209 New Jersey. But on paper, for tax purposes, they 00:06:02.209 --> 00:06:04.490 were Canadian. And that matters because... It 00:06:04.490 --> 00:06:07.459 slashed their corporate tax rate. Dramatically, 00:06:07.459 --> 00:06:10.300 it freed up a colossal amount of cash flow that 00:06:10.300 --> 00:06:13.040 would have otherwise gone to the IRS. But even 00:06:13.040 --> 00:06:15.439 more importantly than the money, it cemented 00:06:15.439 --> 00:06:18.339 the leadership of one man, J. Michael Pearson. 00:06:18.750 --> 00:06:21.910 michael pearson if this whole saga were a movie 00:06:21.910 --> 00:06:25.889 he's the star he's the guy on the poster he absolutely 00:06:25.889 --> 00:06:28.829 is and to understand the next five years of this 00:06:28.829 --> 00:06:31.129 feeding frenzy you really have to get inside 00:06:31.129 --> 00:06:34.170 his head understand his philosophy pearson was 00:06:34.170 --> 00:06:36.670 not a scientist he wasn't a doctor he came from 00:06:36.670 --> 00:06:39.319 the world of consulting he spent decades at the 00:06:39.319 --> 00:06:41.879 elite firm McKinsey & Company. And consultants, 00:06:42.019 --> 00:06:43.939 they see the world through a very different lens 00:06:43.939 --> 00:06:46.740 than, say, a research chemist does. A completely 00:06:46.740 --> 00:06:49.279 different universe. Pearson looked at the entire 00:06:49.279 --> 00:06:51.959 pharmaceutical industry, this massive, complex 00:06:51.959 --> 00:06:54.959 ecosystem, and he thought, you're all doing it 00:06:54.959 --> 00:06:57.899 wrong. You're suckers. Suckers for what? What 00:06:57.899 --> 00:07:00.060 were they doing that was so wrong in his eyes? 00:07:00.240 --> 00:07:02.459 For spending billions of dollars on research 00:07:02.459 --> 00:07:06.019 and development. But isn't that the whole point 00:07:06.019 --> 00:07:08.699 of a pharmaceutical company? To invent new drugs? 00:07:09.160 --> 00:07:11.579 That's the traditional model, yes. You spend 00:07:11.579 --> 00:07:14.220 a decade and a couple billion dollars trying 00:07:14.220 --> 00:07:16.819 to invent a new molecule. You push it through 00:07:16.819 --> 00:07:19.560 clinical trials. It might fail spectacularly 00:07:19.560 --> 00:07:21.519 in phase three, and all that money is just gone. 00:07:22.040 --> 00:07:25.040 It's a massive, high -stakes gamble. And Pearson 00:07:25.040 --> 00:07:28.379 wasn't a gambler. He was the opposite. He wanted 00:07:28.379 --> 00:07:31.459 a sure thing. His entire philosophy, which he 00:07:31.459 --> 00:07:33.540 laid out very clearly to investors, was this. 00:07:34.019 --> 00:07:36.759 Why should I spend a billion dollars trying to 00:07:36.759 --> 00:07:39.779 invent a new cure that has a high chance of failure 00:07:39.779 --> 00:07:42.500 when I could just spend that same billion dollars 00:07:42.500 --> 00:07:44.939 to buy a company that already has a cure that 00:07:44.939 --> 00:07:47.980 works? So he wanted to skip the science part 00:07:47.980 --> 00:07:50.240 and just go straight to the selling part. Precisely. 00:07:50.519 --> 00:07:52.600 Turn the pharmaceutical company into a shopping 00:07:52.600 --> 00:07:55.490 cart. He didn't see it as a laboratory. He saw 00:07:55.490 --> 00:07:57.470 it as a platform company. And what did that mean 00:07:57.470 --> 00:07:59.790 in practice? The strategy was simple and it was 00:07:59.790 --> 00:08:03.069 absolutely ruthless. Step one, buy a company 00:08:03.069 --> 00:08:06.329 that has a proven drug. Step two, immediately 00:08:06.329 --> 00:08:09.110 fire the scientists. Gut the R &D department 00:08:09.110 --> 00:08:11.329 to slash costs. That was always the first thing 00:08:11.329 --> 00:08:13.810 to go. And then step three. This is the part 00:08:13.810 --> 00:08:15.569 that got them in trouble, isn't it? This is the 00:08:15.569 --> 00:08:18.050 part that made the entire world angry. You raise 00:08:18.050 --> 00:08:22.310 the prices aggressively without mercy. Which 00:08:22.310 --> 00:08:23.870 leads us right into the next chapter of this 00:08:23.870 --> 00:08:26.449 story. Section two in our notes, the feeding 00:08:26.449 --> 00:08:30.829 frenzy. This is roughly 2010 to 2015. And looking 00:08:30.829 --> 00:08:33.409 at the list of acquisitions they made, it's honestly 00:08:33.409 --> 00:08:36.409 exhausting just to read. It was a corporate blitzkrieg. 00:08:36.470 --> 00:08:38.330 I mean, they were buying companies faster than 00:08:38.330 --> 00:08:40.549 they could even integrate them. It was all fueled 00:08:40.549 --> 00:08:43.090 by cheap debt. The banks were just throwing money 00:08:43.090 --> 00:08:45.029 at them because the growth story looks so good 00:08:45.029 --> 00:08:47.250 on paper. Let's just let's run through a kind 00:08:47.250 --> 00:08:48.850 of highlight reel here just to give everyone 00:08:48.850 --> 00:08:50.950 a sense of the sheer scale of this operation. 00:08:51.250 --> 00:08:54.820 OK, so the merger happens in 2010. By 2011, they're 00:08:54.820 --> 00:08:57.519 already spending big. They buy a company called 00:08:57.519 --> 00:09:01.379 Pharma Swiss for 350 million euros. They grab 00:09:01.379 --> 00:09:04.840 orthodermatologics from Johnson & Johnson. That 00:09:04.840 --> 00:09:07.139 deal gave them Retin -A -Micro. Retin -A, that's 00:09:07.139 --> 00:09:09.279 a huge acne drug. I feel like I've seen commercials 00:09:09.279 --> 00:09:11.340 for that my whole life. A massive, massive brand. 00:09:11.580 --> 00:09:14.159 Then in 2012, they really step on the gas. They 00:09:14.159 --> 00:09:16.860 dropped $2 .6 billion on Medici's pharmaceutical. 00:09:17.340 --> 00:09:19.480 What did that get them? That was a huge move 00:09:19.480 --> 00:09:21.549 into dermatology. It gave them another major 00:09:21.549 --> 00:09:24.250 acne drug called Saladin. Yeah. And it also gave 00:09:24.250 --> 00:09:26.889 them Dysport. Dysport competes with Botox, right? 00:09:26.929 --> 00:09:29.590 Exactly. Yeah. It's a neurotoxin for wrinkles. 00:09:29.870 --> 00:09:32.470 So you can see the strategy forming. Dermatology 00:09:32.470 --> 00:09:34.970 is a fantastic business. A lot of it is cash 00:09:34.970 --> 00:09:37.629 pay. Patients are motivated and it's a recurring 00:09:37.629 --> 00:09:40.169 revenue stream. They were cornering the market 00:09:40.169 --> 00:09:43.389 on, for lack of a better term, vanity. So they 00:09:43.389 --> 00:09:46.230 were building this dermatology empire. But 2013 00:09:46.230 --> 00:09:49.629 was when they made the leap from just being. 00:09:50.009 --> 00:09:52.429 an aggressive company to being one of the titans 00:09:52.429 --> 00:09:54.590 of the industry. That was the Bausch & Lomb acquisition. 00:09:54.950 --> 00:09:57.230 The eye care giant, a household name. For $8 00:09:57.230 --> 00:09:59.929 .7 billion. They bought it from a private equity 00:09:59.929 --> 00:10:03.149 firm, Warburg Pincus. This was a statement purchase. 00:10:03.470 --> 00:10:06.450 Bausch & Lomb is such a legacy brand. It's not 00:10:06.450 --> 00:10:08.889 sexy like a new cancer drug, but it's contact 00:10:08.889 --> 00:10:11.610 lenses. It's saline solution. It's incredibly 00:10:11.610 --> 00:10:15.110 consistent. It is the cash cow, a reliable, steady, 00:10:15.389 --> 00:10:18.240 massive cash cow. And Michael Pearson needed 00:10:18.240 --> 00:10:20.740 those cash cows to feed the beast. He needed 00:10:20.740 --> 00:10:22.799 that reliable cash flow to pay the interest on 00:10:22.799 --> 00:10:24.899 the mountains of debt he was taking on to buy 00:10:24.899 --> 00:10:27.120 all these other companies. Okay, so the shopping 00:10:27.120 --> 00:10:30.120 spree continues. 2014, they acquire Solta Medical 00:10:30.120 --> 00:10:32.679 and Precision Dermatology, doubling down on the 00:10:32.679 --> 00:10:35.500 skincare bet. And then we hit 2015. This is the 00:10:35.500 --> 00:10:37.740 absolute peak of the bubble. This is the year 00:10:37.740 --> 00:10:40.860 they do their biggest deal ever. They buy Salix 00:10:40.860 --> 00:10:44.960 Pharmaceuticals for an eye -watering $14 .5 billion. 00:10:45.419 --> 00:10:48.200 $14 .5 billion. And they had to fight for it. 00:10:48.220 --> 00:10:50.279 They got into a bidding war with another company, 00:10:50.399 --> 00:10:53.019 Endo Pharmaceuticals, and they just refused to 00:10:53.019 --> 00:10:55.820 lose. This acquisition was huge because it made 00:10:55.820 --> 00:10:59.340 them a major player in a whole new field, gastroenterology. 00:10:59.899 --> 00:11:01.919 stomach drugs. But all the while they're making 00:11:01.919 --> 00:11:04.320 these huge, splashy purchases. The underlying 00:11:04.320 --> 00:11:06.480 Pearson strategy is running in the background, 00:11:06.639 --> 00:11:08.360 right? The price hikes are happening across the 00:11:08.360 --> 00:11:10.100 board. And this is where the story shifts from 00:11:10.100 --> 00:11:12.980 a thrilling Wall Street tale to something much. 00:11:13.419 --> 00:11:15.740 much darker. It's one thing to fire scientists 00:11:15.740 --> 00:11:18.440 in a lab. It's another thing entirely to start 00:11:18.440 --> 00:11:20.559 squeezing patients in the emergency room. I'm 00:11:20.559 --> 00:11:22.960 looking at our notes on two specific drugs, and 00:11:22.960 --> 00:11:25.480 they're just staggering. NitroPress and Isupral, 00:11:25.600 --> 00:11:27.419 these aren't lifestyle drugs. These aren't acne 00:11:27.419 --> 00:11:31.100 creams. No. These are critical care heart medications. 00:11:31.379 --> 00:11:34.039 They are used in hospitals, often in emergency 00:11:34.039 --> 00:11:37.120 situations. So if you are having a cardiac event 00:11:37.120 --> 00:11:39.740 in the ER, you don't have time to shop around 00:11:39.740 --> 00:11:42.480 for a cheaper generic. The doctor needs the drug 00:11:42.480 --> 00:11:45.669 now. The demand is what economists call perfectly 00:11:45.669 --> 00:11:49.090 inelastic. Price is not a factor in the decision 00:11:49.090 --> 00:11:51.590 making process at that moment. So Valent buys 00:11:51.590 --> 00:11:54.230 the rights to these two essential hospital drugs. 00:11:54.370 --> 00:11:57.750 And literally the day after the deal closes, 00:11:58.009 --> 00:12:00.850 what happens to the price? On the very day they 00:12:00.850 --> 00:12:02.669 acquired the rights, they raised the price of 00:12:02.669 --> 00:12:06.100 nitro press by 212 percent. And they raised the 00:12:06.100 --> 00:12:10.259 price of his Super L by 525%. 525%. Overnight. 00:12:10.460 --> 00:12:13.000 Overnight. That's not inflation. That's not R 00:12:13.000 --> 00:12:16.139 &D costs or supply chain issues. That is just 00:12:16.139 --> 00:12:18.740 taking the exact same vial of liquid that cost 00:12:18.740 --> 00:12:21.799 $100 yesterday and charging over $500 for it 00:12:21.799 --> 00:12:24.340 today. It is pure pricing power. It is leverage, 00:12:24.519 --> 00:12:26.600 plain and simple. They knew hospitals had no 00:12:26.600 --> 00:12:28.860 other choice. They looked at a spreadsheet and 00:12:28.860 --> 00:12:30.720 determined that the market would bear this price 00:12:30.720 --> 00:12:32.500 because the alternative was a patient dying. 00:12:32.580 --> 00:12:34.840 It was that cold. There's an even more extreme 00:12:34.840 --> 00:12:37.820 example in our notes, a drug called flucytosine. 00:12:38.179 --> 00:12:41.120 That's an antifungal drug used for serious infections. 00:12:41.620 --> 00:12:44.580 Under Valens' ownership, the price in the United 00:12:44.580 --> 00:12:48.539 States became, get ready for this, 10 ,000 % 00:12:48.539 --> 00:12:51.139 higher than the price for the exact same drug 00:12:51.139 --> 00:12:54.220 in Europe. 10 ,000%. It sounds like a typo. It 00:12:54.220 --> 00:12:57.139 can't be real. It's not a typo. And these weren't 00:12:57.139 --> 00:13:00.480 isolated incidents. The data shows that in 2015 00:13:00.480 --> 00:13:04.000 alone, Valent raised the prices on its portfolio 00:13:04.000 --> 00:13:07.659 of brand -name drugs by an average of 66%. 66 00:13:07.659 --> 00:13:10.620 % across the board. Yes. For comparison, their 00:13:10.620 --> 00:13:12.980 closest industry peer raised prices by about 00:13:12.980 --> 00:13:15.139 15 % that year, which was already considered 00:13:15.139 --> 00:13:17.519 aggressive. Valant wasn't just pushing the envelope 00:13:17.519 --> 00:13:19.580 on pricing. They were setting the envelope on 00:13:19.580 --> 00:13:21.820 fire. They were breaking the unwritten social 00:13:21.820 --> 00:13:24.460 contract of the entire industry. But here's the 00:13:24.460 --> 00:13:26.779 part that I find so fascinating and, frankly, 00:13:26.879 --> 00:13:29.580 so troubling. For years, Wall Street absolutely 00:13:29.580 --> 00:13:32.279 loved this. They adored it. Michael Pearson was 00:13:32.279 --> 00:13:34.980 a hero. The stock was going parabolic. It was 00:13:34.980 --> 00:13:37.460 a rocket ship. Financial analysts were writing 00:13:37.460 --> 00:13:39.259 these glowing reports, calling him a genius. 00:13:39.480 --> 00:13:42.480 Why didn't more people stop and say, hey, this 00:13:42.480 --> 00:13:45.029 feels predatory or... This looks like a bubble 00:13:45.029 --> 00:13:48.889 that's going to pop. Because in the short term, 00:13:49.049 --> 00:13:51.909 the math worked beautifully. If you're a Wall 00:13:51.909 --> 00:13:53.649 Street analyst just looking at the numbers, what 00:13:53.649 --> 00:13:55.730 do you see? You see a company that buys another 00:13:55.730 --> 00:13:58.350 company, immediately cuts a huge amount of cost 00:13:58.350 --> 00:14:01.070 by firing the R &D team, and then triples the 00:14:01.070 --> 00:14:03.470 revenue from its products by raising the prices. 00:14:03.750 --> 00:14:05.750 The margins must have looked incredible. Unbelievable. 00:14:06.009 --> 00:14:09.440 Revenue soared. Profits soared. The massive debt 00:14:09.440 --> 00:14:11.539 they were taking on looked manageable because 00:14:11.539 --> 00:14:14.320 the cash flow was so enormous. It created this 00:14:14.320 --> 00:14:16.919 powerful feedback loop. The stock goes up, which 00:14:16.919 --> 00:14:18.840 allows them to borrow more money, to buy more 00:14:18.840 --> 00:14:21.000 companies, to cut more costs, to raise more prices, 00:14:21.039 --> 00:14:23.179 which makes the stock go up even more. It's a 00:14:23.179 --> 00:14:25.360 perfect machine. Until the real world punches 00:14:25.360 --> 00:14:27.559 you in the face. Yeah. You can only push a system 00:14:27.559 --> 00:14:30.080 like that so far before it snaps back at you 00:14:30.080 --> 00:14:32.919 hard. And that snap is what we're covering next. 00:14:34.039 --> 00:14:37.629 Section 3. The House of Cards collapses. This 00:14:37.629 --> 00:14:41.610 is late 2015 and into 2016. The wheels just come 00:14:41.610 --> 00:14:43.889 completely off the wagon. And it happened on 00:14:43.889 --> 00:14:46.330 two fronts at almost exactly the same time. The 00:14:46.330 --> 00:14:49.289 first was political, and the second was, well, 00:14:49.330 --> 00:14:51.690 it was alleged fraud. Let's start with the political 00:14:51.690 --> 00:14:54.549 front, because you can't gouge hospitals by 500 00:14:54.549 --> 00:14:57.090 % on life -saving heart medication and expect 00:14:57.090 --> 00:14:59.669 no one in Washington to eventually notice. Correct. 00:15:00.009 --> 00:15:02.350 The rumbling started in the summer and fall of 00:15:02.350 --> 00:15:05.259 2015. Members of Congress started sending letters, 00:15:05.379 --> 00:15:08.360 asking questions. But the real explosion, the 00:15:08.360 --> 00:15:10.580 moment the game changed, happened in September 00:15:10.580 --> 00:15:14.559 2015 and then was amplified in early 2016. The 00:15:14.559 --> 00:15:16.480 tweet. The Hillary Clinton moment. She was the 00:15:16.480 --> 00:15:18.379 frontrunner for the Democratic presidential nomination 00:15:18.379 --> 00:15:21.059 at the time. She was. And she sent out a tweet 00:15:21.059 --> 00:15:23.500 linking to a New York Times article about extreme 00:15:23.500 --> 00:15:26.779 price gouging in the specialty drug market. And 00:15:26.779 --> 00:15:28.700 her tweet said something like, price gouging 00:15:28.700 --> 00:15:30.720 like this in the specialty drug market is outrageous. 00:15:31.200 --> 00:15:33.379 Tomorrow, I'll lay out a plan to take it on. 00:15:33.500 --> 00:15:36.340 And Valent was the poster child for this. They 00:15:36.340 --> 00:15:39.980 were exhibit A. The stock dropped 9 % almost 00:15:39.980 --> 00:15:42.980 instantly just from that one tweet. Wow. It was 00:15:42.980 --> 00:15:45.740 a massive signal to the entire market that the 00:15:45.740 --> 00:15:48.500 political air cover was gone. The bright, hot 00:15:48.500 --> 00:15:51.200 spotlight of a presidential campaign was now 00:15:51.200 --> 00:15:54.440 shining directly on their business model. After 00:15:54.440 --> 00:15:57.899 that. The subpoenas started flying. The U .S. 00:15:57.899 --> 00:16:00.019 attorney's offices in Massachusetts and New York 00:16:00.019 --> 00:16:02.320 opened investigations into their pricing and 00:16:02.320 --> 00:16:04.860 their patient assistance programs. So the pricing 00:16:04.860 --> 00:16:07.399 scandal was bad. It was terrible for their public 00:16:07.399 --> 00:16:10.440 image. But there was something much, much weirder 00:16:10.440 --> 00:16:13.019 going on in the shadows. Something that, as you 00:16:13.019 --> 00:16:15.259 said, sounds like a plot from a spy novel. The 00:16:15.259 --> 00:16:19.149 Phantom Pharmacy. This part of the story, every 00:16:19.149 --> 00:16:20.909 time I read it, it just blows my mind. It feels 00:16:20.909 --> 00:16:22.950 like a scene from The Wolf of Wall Street or 00:16:22.950 --> 00:16:25.549 The Big Short. What on earth was Philidor? So 00:16:25.549 --> 00:16:27.850 to understand why it was so weird, you have to 00:16:27.850 --> 00:16:30.389 know how drugs are normally sold. A drug company 00:16:30.389 --> 00:16:33.210 like Pfizer makes the drug. They sell it in bulk 00:16:33.210 --> 00:16:36.129 to a big wholesaler like McKesson. And that wholesaler 00:16:36.129 --> 00:16:38.590 sells it to thousands of independent pharmacies 00:16:38.590 --> 00:16:41.690 like your local CVS or Walgreens. Right, there 00:16:41.690 --> 00:16:44.529 are clear lines. Separation of church and state, 00:16:44.629 --> 00:16:47.970 so to speak. Exactly. But on October 21st, 2015, 00:16:48.429 --> 00:16:50.970 a well -known short seller named Andrew Left, 00:16:51.169 --> 00:16:54.009 who runs a firm called Citrin Research, dropped 00:16:54.009 --> 00:16:57.110 an absolute bombshell. He published a report 00:16:57.110 --> 00:17:00.250 that flat out accused Valent of being the pharmaceutical 00:17:00.250 --> 00:17:03.190 Enron. Enron. I mean, in the world of finance, 00:17:03.309 --> 00:17:05.549 that is the nuclear option of insults. That is 00:17:05.549 --> 00:17:07.569 the worst thing you can call a company. It is. 00:17:07.750 --> 00:17:10.529 Because it implies systemic, deep -seated accounting 00:17:10.529 --> 00:17:14.349 fraud. And Leff's central claim was that Valant 00:17:14.349 --> 00:17:17.269 was using a secret captive network of specialty 00:17:17.269 --> 00:17:20.009 pharmacies, with Philidor being the main one, 00:17:20.170 --> 00:17:23.049 to essentially book fake sales. How would that 00:17:23.049 --> 00:17:25.950 even work? How do you book a fake sale? The allegation 00:17:25.950 --> 00:17:28.750 was this. Valant would ship millions of dollars 00:17:28.750 --> 00:17:31.009 worth of its most expensive drugs to Philidor. 00:17:31.349 --> 00:17:33.309 The moment those drugs left the Valent warehouse, 00:17:33.630 --> 00:17:36.069 Valent would record it on their books as a sale, 00:17:36.210 --> 00:17:38.670 recognizing all that revenue immediately. Even 00:17:38.670 --> 00:17:40.549 though the drugs hadn't actually been sold to 00:17:40.549 --> 00:17:42.329 a patient yet, they were just sitting on a shelf. 00:17:42.809 --> 00:17:46.309 Exactly. Sitting on a shelf at a pharmacy that, 00:17:46.390 --> 00:17:50.009 left alleged, Valent secretly controlled. So 00:17:50.009 --> 00:17:51.609 it was like moving money from your left pocket 00:17:51.609 --> 00:17:54.369 to your right pocket and calling it income. It 00:17:54.369 --> 00:17:56.230 was a way to inflate their revenue and earnings 00:17:56.230 --> 00:17:58.990 numbers to keep the stock price high. And the 00:17:58.990 --> 00:18:01.730 story gets even stranger, right? There were allegations 00:18:01.730 --> 00:18:04.829 about Valant employees actually working at Philidor. 00:18:04.970 --> 00:18:07.769 Yes. It came out that Valant employees were basically 00:18:07.769 --> 00:18:10.950 managing Philidor's operations. But they were 00:18:10.950 --> 00:18:14.910 using fake names. Fictitious identities. Wait, 00:18:14.950 --> 00:18:18.349 like spies? It sounds crazy, doesn't it? They 00:18:18.349 --> 00:18:21.750 were using email aliases like Peter Parker, literally 00:18:21.750 --> 00:18:24.450 using comic book character names to hide the 00:18:24.450 --> 00:18:26.109 fact that Valant and Philidor were essentially 00:18:26.109 --> 00:18:28.440 the same entity. There were also allegations 00:18:28.440 --> 00:18:30.079 that they were altering doctors' prescription 00:18:30.079 --> 00:18:32.380 codes to force insurance companies to reimburse 00:18:32.380 --> 00:18:34.940 for the expensive, valiant brand name drug instead 00:18:34.940 --> 00:18:37.599 of a cheaper generic. OK, that's not just aggressive 00:18:37.599 --> 00:18:40.019 capitalism anymore. That crosses the line into 00:18:40.019 --> 00:18:42.420 what looks like straight up fraud. And that's 00:18:42.420 --> 00:18:45.630 what shattered the trust. Wall Street can forgive 00:18:45.630 --> 00:18:48.269 a lot of things, but it will not forgive being 00:18:48.269 --> 00:18:50.849 lied to about the numbers. Valance management 00:18:50.849 --> 00:18:54.289 came out swinging at first. They called the Citroen 00:18:54.289 --> 00:18:57.960 report erroneous and denied everything. But the 00:18:57.960 --> 00:19:00.359 evidence just kept piling up. The evidence was 00:19:00.359 --> 00:19:02.740 overwhelming. Within about a week, by October 00:19:02.740 --> 00:19:05.599 30th, they completely reversed course and announced 00:19:05.599 --> 00:19:07.900 they were severing all ties with Philidor. They 00:19:07.900 --> 00:19:10.920 have to cut it loose. They had no choice. Walgreens 00:19:10.920 --> 00:19:13.059 Boots Alliance actually had to step in and take 00:19:13.059 --> 00:19:14.779 over distribution for some of their products. 00:19:15.180 --> 00:19:18.970 But the damage. The damage was fatal to the company's 00:19:18.970 --> 00:19:21.750 reputation and its stock price. The stock chart 00:19:21.750 --> 00:19:24.509 from that period, from mid -2015 through 2017, 00:19:24.829 --> 00:19:27.089 is genuinely terrifying to look at. It's just 00:19:27.089 --> 00:19:30.529 a cliff. From a peak of over $260 a share, it 00:19:30.529 --> 00:19:33.309 plummeted to around $10. It was more than 90 00:19:33.309 --> 00:19:36.190 % collapse, total wealth annihilation. And we 00:19:36.190 --> 00:19:37.829 have to talk about the so -called smart money 00:19:37.829 --> 00:19:40.130 here, because it wasn't just small retail investors 00:19:40.130 --> 00:19:42.150 who got wiped out. Some of the biggest names 00:19:42.150 --> 00:19:44.910 in finance got absolutely torched. Bill Ackman. 00:19:45.240 --> 00:19:48.579 The billionaire activist investor, head of the 00:19:48.579 --> 00:19:51.859 hedge fund, Pershing Square Capital. He wasn't 00:19:51.859 --> 00:19:53.940 just an investor. He was the company's biggest 00:19:53.940 --> 00:19:57.279 cheerleader. He was all in. He was on TV. He 00:19:57.279 --> 00:20:00.000 was at investment conferences, passionately defending 00:20:00.000 --> 00:20:02.019 Michael Pearson and the valiant business model. 00:20:02.119 --> 00:20:05.259 He saw it as a brilliant, efficient, new way 00:20:05.259 --> 00:20:07.559 to run a drug company. And there's a phenomenon 00:20:07.559 --> 00:20:10.500 on Wall Street, right? Hedge fund hurting. Absolutely. 00:20:11.130 --> 00:20:14.170 When a titan like Bill Ackman makes a huge high 00:20:14.170 --> 00:20:16.789 conviction bet, a lot of other fund managers 00:20:16.789 --> 00:20:18.750 just follow him in. They assume he's done all 00:20:18.750 --> 00:20:20.990 the deep research, so they just ride his coattails. 00:20:21.150 --> 00:20:23.569 But it seems his research didn't uncover the 00:20:23.569 --> 00:20:26.130 secrets of Philidor. Apparently not deep enough. 00:20:26.329 --> 00:20:29.289 And even as the scandal broke and the stock started 00:20:29.289 --> 00:20:31.990 to crater, he doubled down. He bought more. He 00:20:31.990 --> 00:20:35.029 went on CNBC for a now infamous multi -hour interview 00:20:35.029 --> 00:20:38.140 where he emotionally defended the company. insisting 00:20:38.140 --> 00:20:39.900 it was just a misunderstanding and that the stock 00:20:39.900 --> 00:20:42.200 was massively undervalued. But the stock just 00:20:42.200 --> 00:20:44.740 kept falling. He was just incinerating his investors' 00:20:44.839 --> 00:20:47.279 money. He finally threw in the towel and sold 00:20:47.279 --> 00:20:51.180 the entire position in 2017. He had to. His own 00:20:51.180 --> 00:20:53.720 fund's performance was getting destroyed. What 00:20:53.720 --> 00:20:57.019 was the final tally on the loss? The estimates 00:20:57.019 --> 00:21:00.740 are around $2 .8 billion. $2 .8 billion. It's 00:21:00.740 --> 00:21:02.500 a number so large it's hard to even comprehend. 00:21:02.799 --> 00:21:06.839 That's the GDP of a small country. And the humiliation 00:21:06.839 --> 00:21:10.400 wasn't just financial. It was incredibly public. 00:21:10.720 --> 00:21:13.400 The final nail in the coffin for that era was 00:21:13.400 --> 00:21:16.519 in April of 2016, when the Senate Special Committee 00:21:16.519 --> 00:21:18.920 on Aging hauled the key players into Washington 00:21:18.920 --> 00:21:21.779 for a public hearing. I remember seeing the pictures 00:21:21.779 --> 00:21:24.759 from that day. They all looked absolutely miserable. 00:21:25.200 --> 00:21:27.440 You had Bill Ackman, Michael Pearson, and the 00:21:27.440 --> 00:21:30.339 former CFO Howard Schiller all sitting side by 00:21:30.339 --> 00:21:32.980 side at a witness table. They looked like schoolboys 00:21:32.980 --> 00:21:34.599 who'd been called to the principal's office. 00:21:35.180 --> 00:21:37.079 Senators from both parties were just tearing 00:21:37.079 --> 00:21:39.039 into them. Why did you raise the price of this 00:21:39.039 --> 00:21:41.779 heart drug by 500 percent? Did you ever stop 00:21:41.779 --> 00:21:44.480 to think about the patients? Pearson, in particular, 00:21:44.759 --> 00:21:46.980 looked like a different person. The swagger was 00:21:46.980 --> 00:21:49.740 gone. The mystique was shattered. The genius 00:21:49.740 --> 00:21:53.059 CEO was revealed to be just a guy with a flawed 00:21:53.059 --> 00:21:56.450 spreadsheet model who got caught. It was the 00:21:56.450 --> 00:21:59.549 definitive searing image of corporate greed for 00:21:59.549 --> 00:22:02.029 that entire decade. It was so iconic it even 00:22:02.029 --> 00:22:04.170 got its own episode in that Netflix documentary 00:22:04.170 --> 00:22:06.890 series, Dirty Money. Season one, episode three. 00:22:07.069 --> 00:22:09.710 It's called Drug Short. If you really want to 00:22:09.710 --> 00:22:12.289 see the human cost of this business model, the 00:22:12.289 --> 00:22:13.890 patients who couldn't afford their medicine, 00:22:14.109 --> 00:22:17.990 that's the episode to watch. It is powerful stuff. 00:22:18.269 --> 00:22:21.039 So the party is over. The bubble has burst in 00:22:21.039 --> 00:22:23.980 the most spectacular way possible. Michael Pearson 00:22:23.980 --> 00:22:26.880 is forced out. The stock is in the toilet. The 00:22:26.880 --> 00:22:29.819 company's reputation is in ashes. This brings 00:22:29.819 --> 00:22:32.440 us to section four of our story, the cleanup 00:22:32.440 --> 00:22:34.599 and rebranding. The mother of all hangovers. 00:22:34.819 --> 00:22:38.259 They bring in a new CEO in April 2016, a guy 00:22:38.259 --> 00:22:41.480 named Joseph Papa. What a job to walk into. I 00:22:41.480 --> 00:22:43.500 mean, where do you even start? He was known as 00:22:43.500 --> 00:22:45.660 a turnaround artist. He had previously run another 00:22:45.660 --> 00:22:48.259 drug company called Perigo. But this is a different 00:22:48.259 --> 00:22:50.099 level. He wasn't just walking into a troubled 00:22:50.099 --> 00:22:51.920 company. He was walking into a burning building 00:22:51.920 --> 00:22:54.720 surrounded by angry villagers with pitchforks. 00:22:54.740 --> 00:22:57.019 The company had something like $30 billion in 00:22:57.019 --> 00:22:58.759 debt from all those acquisitions, right? $30 00:22:58.759 --> 00:23:02.160 billion, an almost unserviceable amount. And 00:23:02.160 --> 00:23:05.000 everyone hated them. Doctors, patients, politicians, 00:23:05.460 --> 00:23:08.740 investors. His job, first and foremost, was simply 00:23:08.740 --> 00:23:10.759 to prevent bankruptcy, just stop the bleeding. 00:23:10.960 --> 00:23:13.539 So how do you save a company that's in that dire 00:23:13.539 --> 00:23:16.160 of a state? She'd sell the furniture. you have 00:23:16.160 --> 00:23:18.680 to conduct a massive fire sale to raise cash 00:23:18.680 --> 00:23:21.519 and pay down the debt. So all those prized assets 00:23:21.519 --> 00:23:24.359 they bought during the feeding frenzy, they had 00:23:24.359 --> 00:23:27.039 to start selling them off. Immediately. And they 00:23:27.039 --> 00:23:28.619 had to sell them from a position of weakness, 00:23:28.819 --> 00:23:31.640 which means they didn't get top dollar. The first 00:23:31.640 --> 00:23:35.319 big sale was in January 2017. They sold a bundle 00:23:35.319 --> 00:23:38.140 of their best -known skincare brands, Cerave, 00:23:38.200 --> 00:23:40.859 Acne Free, and Ambiye, to the cosmetics giant 00:23:40.859 --> 00:23:45.430 L 'Oreal for $1 .3 billion. Let's pause on Saroe 00:23:45.430 --> 00:23:46.970 for just a second. Yeah, it's a great point. 00:23:47.069 --> 00:23:49.849 Back in 2017, Saroe was a solid dermatologist 00:23:49.849 --> 00:23:52.990 recommended brand. But today, in 2026, thanks 00:23:52.990 --> 00:23:55.190 to TikTok and the rise of skincare influencers, 00:23:55.670 --> 00:23:58.230 Saroe is an absolute juggernaut. It's everywhere. 00:23:58.670 --> 00:24:01.990 L 'Oreal got the deal of the century. They bought 00:24:01.990 --> 00:24:05.029 a future gold mine for relative pennies on the 00:24:05.029 --> 00:24:07.170 dollar because Valiant was absolutely desperate 00:24:07.170 --> 00:24:10.009 for cash. That's the real cost of a crisis like 00:24:10.009 --> 00:24:12.190 this. You were forced to sell your crown jewels 00:24:12.190 --> 00:24:14.630 just to survive. They kept selling. Oh, yeah. 00:24:14.690 --> 00:24:17.470 They sold a biotech unit called Dendreon for 00:24:17.470 --> 00:24:20.890 over $800 million. They sold Inova Pharmaceuticals 00:24:20.890 --> 00:24:24.589 for $910 million. But the most telling and kind 00:24:24.589 --> 00:24:27.910 of tragicomic sale was what they did with Sprout 00:24:27.910 --> 00:24:31.000 Pharmaceuticals. Oh, Sprout. This is the perfect 00:24:31.000 --> 00:24:33.519 example of the hubris of the Pearson era, isn't 00:24:33.519 --> 00:24:36.960 it? It truly is. So back in August 2015, at the 00:24:36.960 --> 00:24:39.599 absolute peak of the mania, Valiant bought Sprout 00:24:39.599 --> 00:24:43.259 for $1 billion in cash. Sprout's only product 00:24:43.259 --> 00:24:45.480 was a drug called Addi, which was being marketed 00:24:45.480 --> 00:24:48.119 as the female Viagra. I remember the hype around 00:24:48.119 --> 00:24:49.700 that drug. It was supposed to be a blockbuster? 00:24:49.900 --> 00:24:51.680 That was the hope. But it was a commercial disaster. 00:24:52.019 --> 00:24:53.640 It didn't work very well. It had significant 00:24:53.640 --> 00:24:55.359 side effects. You couldn't drink alcohol while 00:24:55.359 --> 00:24:58.630 taking it. The sales were abysmal. So what did 00:24:58.630 --> 00:25:01.029 the new management under Joe Papa do with this 00:25:01.029 --> 00:25:04.289 billion -dollar bust? In November of 2017, just 00:25:04.289 --> 00:25:07.329 two years after buying it, they gave it back. 00:25:07.529 --> 00:25:10.289 They gave it back for free? Essentially, yes. 00:25:10.410 --> 00:25:12.589 They returned the company to its original owners 00:25:12.589 --> 00:25:15.549 in exchange for a tiny potential royalty stream 00:25:15.549 --> 00:25:18.269 down the road. They basically paid a billion 00:25:18.269 --> 00:25:21.170 dollars to rent a failed drug for two years. 00:25:21.470 --> 00:25:23.950 They just lit the money on fire to get the operating 00:25:23.950 --> 00:25:26.990 costs off their books. Wow. But Papa's strategy, 00:25:27.150 --> 00:25:30.190 as painful as it was, it did work, didn't it? 00:25:30.190 --> 00:25:32.329 It staunched the bleeding. It stabilized the 00:25:32.329 --> 00:25:35.210 patient, yes. By early 2018, the company was 00:25:35.210 --> 00:25:37.710 profitable again on an operating basis. They 00:25:37.710 --> 00:25:40.390 had managed to pay down over $6 .5 billion in 00:25:40.390 --> 00:25:43.569 debt, but they still had one massive radioactive 00:25:43.569 --> 00:25:46.990 problem. The V word. The name valent. The brand 00:25:46.990 --> 00:25:49.329 was toxic. Doctors didn't want to tell patients 00:25:49.329 --> 00:25:51.589 they were prescribing a valent drug. Talented 00:25:51.589 --> 00:25:54.150 people didn't want to work for valent. Investors 00:25:54.150 --> 00:25:56.069 didn't want to see valent in their portfolios. 00:25:56.109 --> 00:25:58.230 The name itself was an anchor dragging them down. 00:25:58.349 --> 00:26:00.049 So they needed a complete identity transplant. 00:26:00.390 --> 00:26:03.029 They did. And they looked at the portfolio of 00:26:03.029 --> 00:26:05.809 assets they had left, and one name stood out 00:26:05.809 --> 00:26:08.970 as clean, respected, and untarnished by the scandal. 00:26:09.869 --> 00:26:13.220 Bausch & Lomb. The company they'd bought in 2013, 00:26:13.619 --> 00:26:17.339 it stood for vision, clarity, history, everything 00:26:17.339 --> 00:26:19.359 Valent did not. It was the smartest move they 00:26:19.359 --> 00:26:22.720 could make. So in July of 2018, they officially 00:26:22.720 --> 00:26:26.279 rebranded the entire parent company. Valent Pharmaceuticals 00:26:26.279 --> 00:26:29.079 ceased to exist and Bausch Health Companies was 00:26:29.079 --> 00:26:31.059 born. It's like putting on a clean white lab 00:26:31.059 --> 00:26:33.859 coat to cover up a badly stained suit. A perfect 00:26:33.859 --> 00:26:36.259 analogy. But as you know, changing the name on 00:26:36.259 --> 00:26:38.119 the door doesn't make the mountain of lawsuits 00:26:38.119 --> 00:26:40.980 just disappear. No. They still had to pay for 00:26:40.980 --> 00:26:43.519 the sins of the past. For the next few years, 00:26:43.579 --> 00:26:45.799 they were just writing enormous checks. The biggest 00:26:45.799 --> 00:26:48.500 one came in December 2019. The shareholder class 00:26:48.500 --> 00:26:50.819 action lawsuit. A settlement for approximately 00:26:50.819 --> 00:26:54.460 $1 .21 billion. In the settlement, they officially 00:26:54.460 --> 00:26:57.299 denied any wrongdoing, which is standard legal 00:26:57.299 --> 00:27:00.079 boilerplate. But they paid the billion dollars 00:27:00.079 --> 00:27:02.200 to make the lawsuit go away. And the regulators 00:27:02.200 --> 00:27:05.940 at the SEC came knocking, too. They did. In July 00:27:05.940 --> 00:27:09.519 of 2020, they agreed to pay a $45 million penalty 00:27:09.519 --> 00:27:13.619 to the SEC for improper revenue recognition related 00:27:13.619 --> 00:27:16.039 to the Philidor scandal. Did any of the executives 00:27:16.039 --> 00:27:18.059 have to pay personally? That's actually pretty 00:27:18.059 --> 00:27:21.680 rare. It is, but in this case, yes. The SEC made 00:27:21.680 --> 00:27:24.200 a point of it. Michael Pearson himself had to 00:27:24.200 --> 00:27:27.279 pay a civil penalty of $250 ,000 and reimburse 00:27:27.279 --> 00:27:30.950 the company another $450 ,000. The former CFO, 00:27:31.109 --> 00:27:34.130 Howard Schiller, paid $100 ,000 and another executive, 00:27:34.410 --> 00:27:37.549 Tanya Caro, paid $75 ,000. It feels like a slap 00:27:37.549 --> 00:27:39.829 on the wrist compared to the billions in shareholder 00:27:39.829 --> 00:27:41.710 value that was destroyed, but at least it was 00:27:41.710 --> 00:27:44.000 some measure of personal accountability. It was. 00:27:44.299 --> 00:27:46.220 And it really closed the chapter on the scandal 00:27:46.220 --> 00:27:48.319 era. It allowed the new company, Bausch Health, 00:27:48.500 --> 00:27:50.920 to finally try and move forward and be judged 00:27:50.920 --> 00:27:52.960 on its own merits. Which brings us to today, 00:27:53.240 --> 00:27:56.160 the modern era, Section 5. Let's talk about the 00:27:56.160 --> 00:27:58.160 company as it actually exists right now, from 00:27:58.160 --> 00:28:01.599 2022 to the present day in February 2026. The 00:28:01.599 --> 00:28:03.700 leadership has turned over again. Joseph Papa, 00:28:03.880 --> 00:28:05.660 the turnaround guy, did the dirty work of cleaning 00:28:05.660 --> 00:28:08.759 up the mess. And then in May of 2022, a new CEO, 00:28:09.079 --> 00:28:11.359 Thomas J. Appio, took the helm. And look who's 00:28:11.359 --> 00:28:15.200 the chairman of the board now. Another absolute 00:28:15.200 --> 00:28:17.619 legend in the hedge fund world. It just goes 00:28:17.619 --> 00:28:20.720 to show you that Wall Street never really let 00:28:20.720 --> 00:28:23.559 go of this company. The hedge funds that survived 00:28:23.559 --> 00:28:26.500 the crash still have a huge stake in its ultimate 00:28:26.500 --> 00:28:28.579 success. But when you look at the financials 00:28:28.579 --> 00:28:31.930 now. They look like a normal company. They do. 00:28:32.049 --> 00:28:34.470 It's almost boring, which is a good thing for 00:28:34.470 --> 00:28:36.950 them. If we look at the full year 2024 figures, 00:28:37.230 --> 00:28:39.750 you're seeing revenue of around $9 .6 billion, 00:28:40.130 --> 00:28:43.269 net income of about $1 .4 billion. They have 00:28:43.269 --> 00:28:45.809 roughly 7 ,000 employees. It's a real business 00:28:45.809 --> 00:28:47.690 again. It's not a rocket ship anymore, but it's 00:28:47.690 --> 00:28:50.329 not a sinking ship either. It's a grinder. A 00:28:50.329 --> 00:28:52.589 stable, slow -growth pharmaceutical company. 00:28:52.769 --> 00:28:55.470 They're just grinding out profits to continue 00:28:55.470 --> 00:28:58.109 servicing that remaining pile of debt. And they 00:28:58.109 --> 00:29:00.289 are fighting tooth and nail in the courts to 00:29:00.289 --> 00:29:02.549 protect their key products. Which brings us to 00:29:02.549 --> 00:29:05.490 what you've called the Syphaxin War. This is 00:29:05.490 --> 00:29:07.750 probably the single most critical storyline for 00:29:07.750 --> 00:29:10.289 the company over the last three years. Syphaxin 00:29:10.289 --> 00:29:12.990 is their blockbuster drug. It's a gastrointestinal 00:29:12.990 --> 00:29:15.789 drug. The chemical name is rifaximin. It came 00:29:15.789 --> 00:29:18.009 from that big Salix acquisition. What's it used 00:29:18.009 --> 00:29:20.750 for? It's approved for irritable bowel syndrome, 00:29:20.970 --> 00:29:24.269 IBS, but its biggest moneymaker is an indication 00:29:24.269 --> 00:29:27.210 for preventing the recurrence of ovote hepatic 00:29:27.210 --> 00:29:29.799 encephalopathy. Which is... A bit of a mouthful. 00:29:29.920 --> 00:29:32.039 It's a very serious condition. It happens in 00:29:32.039 --> 00:29:34.660 patients with advanced liver disease, where toxins 00:29:34.660 --> 00:29:36.700 build up in the blood and start to affect brain 00:29:36.700 --> 00:29:39.440 function, causing confusion and cognitive decline. 00:29:40.039 --> 00:29:42.680 Patients often need to take Xifaxin chronically 00:29:42.680 --> 00:29:45.819 to prevent these episodes. So it's a huge, reliable, 00:29:46.180 --> 00:29:48.180 recurring revenue stream for them. The biggest 00:29:48.180 --> 00:29:51.220 one they have. And a generic drug company called 00:29:51.220 --> 00:29:53.720 Norwich Pharmaceuticals wanted to launch a cheap 00:29:53.720 --> 00:29:57.259 copy. Bausch, naturally, sued them for patent 00:29:57.259 --> 00:29:59.549 infringement. And in these patent fights, the 00:29:59.549 --> 00:30:01.890 generic companies often win eventually, don't 00:30:01.890 --> 00:30:05.410 they? They often do. But in May of 2023, Bausch 00:30:05.410 --> 00:30:08.150 Health scored a massive company -saving legal 00:30:08.150 --> 00:30:11.700 victory. A federal judge, Richard Andrews, issued 00:30:11.700 --> 00:30:13.799 a ruling that blocked the FDA from approving 00:30:13.799 --> 00:30:16.960 Norwich's generic version until October of 2029. 00:30:17.440 --> 00:30:20.180 2029. That's incredible. They secured years more 00:30:20.180 --> 00:30:22.519 of monopoly pricing on their most important product. 00:30:22.839 --> 00:30:25.279 That one court ruling is probably paying the 00:30:25.279 --> 00:30:27.460 electric bill and the salaries for the entire 00:30:27.460 --> 00:30:30.200 company right now. It shows that while they may 00:30:30.200 --> 00:30:32.980 have stopped the illegal price gouging, they 00:30:32.980 --> 00:30:35.160 are still exceptionally aggressive when it comes 00:30:35.160 --> 00:30:37.480 to legal patent defense. And on the public relations 00:30:37.480 --> 00:30:39.309 front, they're trying... to soften their image 00:30:39.309 --> 00:30:42.029 too i saw they hired alex rodriguez for a campaign 00:30:42.029 --> 00:30:45.990 a rut yes in june of 2023 their aura pharma division 00:30:45.990 --> 00:30:48.650 which focuses on dental health partnered with 00:30:48.650 --> 00:30:51.430 the baseball legend the campaign was called cover 00:30:51.430 --> 00:30:54.410 your bases i see what they did there very clever 00:30:54.410 --> 00:30:57.369 it was for a gum disease awareness campaign but 00:30:57.369 --> 00:31:01.220 think about the symbolism It is a long, long 00:31:01.220 --> 00:31:04.019 way from being grilled by the U .S. Senate about 00:31:04.019 --> 00:31:06.299 life -saving heart drugs. When you're at the 00:31:06.299 --> 00:31:07.880 point where you're making baseball puns with 00:31:07.880 --> 00:31:10.460 A -Rod, you are signaling to the world we are 00:31:10.460 --> 00:31:13.220 a normal, friendly, consumer -facing brand now. 00:31:13.400 --> 00:31:16.019 But the real test, the ultimate proof of whether 00:31:16.019 --> 00:31:18.819 they have truly, fundamentally changed their 00:31:18.819 --> 00:31:22.000 DNA, it has to be R &D, doesn't it? It has to 00:31:22.000 --> 00:31:24.779 be. Remember, Michael Pearson's core philosophy 00:31:24.779 --> 00:31:30.210 was that R &D was a waste of money. Bausch Health 00:31:30.210 --> 00:31:32.849 is, are they actually spending money to invent 00:31:32.849 --> 00:31:35.130 new things now? Okay, so let's dig into that. 00:31:35.250 --> 00:31:38.450 Section six, the pipeline and future outlook. 00:31:38.769 --> 00:31:41.250 This is the very latest stuff based on their 00:31:41.250 --> 00:31:46.089 reporting from late 2024 and 2025. Are they inventing? 00:31:46.230 --> 00:31:48.470 They absolutely are. And they're not just dabbling. 00:31:48.509 --> 00:31:50.609 They are making significant investments in their 00:31:50.609 --> 00:31:52.650 development pipeline, and they're focusing on 00:31:52.650 --> 00:31:55.509 a few key high growth areas. Such as? Dermatology 00:31:55.509 --> 00:31:57.849 and aesthetics. They'll look good, feel good 00:31:57.849 --> 00:32:00.039 business. It's a smart place to be. Tell me about 00:32:00.039 --> 00:32:02.819 this new acne drug, Cabitrio. So they launched 00:32:02.819 --> 00:32:06.440 Cabitrio in Canada back in October of 2024. And 00:32:06.440 --> 00:32:08.000 what's interesting about it is that it's a triple 00:32:08.000 --> 00:32:10.640 combination therapy for acne. Triple combo. So 00:32:10.640 --> 00:32:13.460 three drugs in one. Exactly. It puts three different 00:32:13.460 --> 00:32:15.920 proven active ingredients into a single once 00:32:15.920 --> 00:32:18.440 a day cream. That is actual formulation innovation. 00:32:18.559 --> 00:32:20.740 It makes life easier for patients, usually teenagers, 00:32:21.019 --> 00:32:22.759 because they don't have to remember to put on 00:32:22.759 --> 00:32:24.839 three different creams every night. It improves 00:32:24.839 --> 00:32:27.210 compliance. That's smart. And it looks like they're 00:32:27.210 --> 00:32:29.349 getting into high -tech devices, too. They are. 00:32:29.490 --> 00:32:32.950 They have a device called Thermage FLX. It sounds 00:32:32.950 --> 00:32:35.210 a bit like science fiction, but it's a non -invasive 00:32:35.210 --> 00:32:37.569 treatment that uses radiofrequency energy to 00:32:37.569 --> 00:32:40.869 tighten skin. So a non -surgical facelift, basically. 00:32:40.970 --> 00:32:43.690 That's the idea. It heats the deep layers of 00:32:43.690 --> 00:32:46.029 the skin to stimulate the body's own collagen 00:32:46.029 --> 00:32:48.460 production. They submitted it for approval in 00:32:48.460 --> 00:32:51.700 Canada in late 2024 and got the green light in 00:32:51.700 --> 00:32:54.240 April of 2025. And there's another one here, 00:32:54.359 --> 00:32:57.680 Clear Plus Brilliant Touch. That's a fractional 00:32:57.680 --> 00:33:00.200 laser system for skin rejuvenation. Yeah. Look 00:33:00.200 --> 00:33:01.759 where they're focusing their efforts with that 00:33:01.759 --> 00:33:04.440 one. Throughout 2024, they got approvals to launch 00:33:04.440 --> 00:33:06.599 it in Australia, New Zealand, the Philippines, 00:33:06.980 --> 00:33:10.119 Thailand, Taiwan, Malaysia, Singapore. They're 00:33:10.119 --> 00:33:12.519 making a big push into Asia. A massive push. 00:33:12.579 --> 00:33:14.799 The medical aesthetics market in Asia is absolutely 00:33:14.799 --> 00:33:17.319 booming. It's a very savvy business move for 00:33:17.319 --> 00:33:19.720 Bausch. It's high margin. And a lot of these 00:33:19.720 --> 00:33:22.140 treatments are paid for with cash. So you don't 00:33:22.140 --> 00:33:24.220 have to deal with the hassles of insurance reimbursement. 00:33:24.519 --> 00:33:26.920 But are they doing anything for serious, life 00:33:26.920 --> 00:33:29.440 -threatening diseases? Or is it all just wrinkles 00:33:29.440 --> 00:33:31.700 and pimples now? No, to their credit, they are 00:33:31.700 --> 00:33:34.299 doing the hard science, too. Their Salix division, 00:33:34.579 --> 00:33:37.819 the gastrointestinal experts, have a very promising 00:33:37.819 --> 00:33:41.059 drug in late -stage development called emicellamide. 00:33:41.519 --> 00:33:43.940 That's a mouthful. What does it do? It's a potential 00:33:43.940 --> 00:33:47.059 oral therapy for patients with moderate to severe 00:33:47.059 --> 00:33:50.599 ulcerative colitis. That is a truly debilitating 00:33:50.599 --> 00:33:54.160 chronic inflammatory bowel disease. Emicillamod 00:33:54.160 --> 00:33:57.059 works by modulating the immune system. And where 00:33:57.059 --> 00:33:59.440 is that in the development process? It's advancing 00:33:59.440 --> 00:34:01.880 toward phase three trials. That is the final, 00:34:01.940 --> 00:34:04.880 most expensive, and riskiest stage of drug development 00:34:04.880 --> 00:34:07.200 before you can submit for approval. They've already 00:34:07.200 --> 00:34:09.340 completed meetings with the big global regulators, 00:34:09.579 --> 00:34:12.599 the FDA in the U .S. the EMA in Europe, and the 00:34:12.599 --> 00:34:14.750 PMDA in Japan. The fact that they're willing 00:34:14.750 --> 00:34:19.010 to fund a massive global phase three trial, that 00:34:19.010 --> 00:34:21.369 really does prove they've abandoned the old Pearson 00:34:21.369 --> 00:34:24.289 philosophy of don't invent anything. It's definitive 00:34:24.289 --> 00:34:27.170 proof. This is a huge gamble, and it's the kind 00:34:27.170 --> 00:34:29.250 of gamble a real pharmaceutical company makes. 00:34:29.429 --> 00:34:31.969 And what's this REDC program I see in our notes? 00:34:32.230 --> 00:34:34.949 That's a large -scale program evaluating one 00:34:34.949 --> 00:34:37.110 of their existing drugs for the prevention of 00:34:37.110 --> 00:34:39.710 that serious liver -brain condition, hepatic 00:34:39.710 --> 00:34:41.769 encephalopathy, that we talked about earlier 00:34:41.769 --> 00:34:44.400 with GFAXN. It's a global phase three study. 00:34:44.599 --> 00:34:47.380 And when do we see the results from that? The 00:34:47.380 --> 00:34:49.800 top line results are expected. Well, basically 00:34:49.800 --> 00:34:52.360 right around now. The company has guided for 00:34:52.360 --> 00:34:55.059 early 2026. So if you're an investor listening 00:34:55.059 --> 00:34:57.239 to this, you should be watching the news wires 00:34:57.239 --> 00:35:00.559 for that RADC data any day now. Absolutely. If 00:35:00.559 --> 00:35:03.260 those studies are positive, it will solidify 00:35:03.260 --> 00:35:05.760 their dominance in that liver disease space for 00:35:05.760 --> 00:35:08.300 another decade. It's a huge potential catalyst 00:35:08.300 --> 00:35:10.519 for the company. Before we wrap this all up, 00:35:10.579 --> 00:35:12.179 it's probably worth mentioning that even though 00:35:12.179 --> 00:35:14.539 they've changed, the regulators haven't completely 00:35:14.539 --> 00:35:17.199 forgotten their past. No, the ghost of their 00:35:17.199 --> 00:35:19.940 monopolistic behavior still lingers. You have 00:35:19.940 --> 00:35:22.659 to remember that back in 2016 and 2017, the Federal 00:35:22.659 --> 00:35:25.420 Trade Commission, the FTC, forced them to divest 00:35:25.420 --> 00:35:27.579 a company called Paragon Holdings. What was that 00:35:27.579 --> 00:35:30.360 about? Contact lens buttons. It sounds funny, 00:35:30.440 --> 00:35:32.699 but it's a critical component. They're the little 00:35:32.699 --> 00:35:35.559 polymer discs that are used to manufacture certain 00:35:35.559 --> 00:35:39.000 types of hard contact lenses. It systematically 00:35:39.000 --> 00:35:41.840 bought up the entire supply chain to corner the 00:35:41.840 --> 00:35:44.400 market. The government stepped in and broke that 00:35:44.400 --> 00:35:46.920 up to restore competition. So it serves as a 00:35:46.920 --> 00:35:49.119 constant reminder, doesn't it? This company is 00:35:49.119 --> 00:35:50.880 on a much shorter leash now. They can't just 00:35:50.880 --> 00:35:52.739 go out and buy up entire industries anymore. 00:35:52.820 --> 00:35:54.739 They have to actually compete. Have to innovate 00:35:54.739 --> 00:35:57.780 and compete, just like a normal company. So let's 00:35:57.780 --> 00:35:59.679 try to bring this incredible story all together. 00:35:59.800 --> 00:36:03.940 The outro. It has been a wild, wild ride. We 00:36:03.940 --> 00:36:07.360 started this story in a garage in 1959 with a 00:36:07.360 --> 00:36:09.900 cyclist, chemist, prime minister named Ponich. 00:36:10.099 --> 00:36:12.679 We went through the clever tax inversion, the 00:36:12.679 --> 00:36:15.900 McKinsey -led takeover, the 500 % price hikes, 00:36:16.000 --> 00:36:18.480 the phantom pharmacy, the stock market crash 00:36:18.480 --> 00:36:22.280 that vaporized billions, and now a quiet, steady, 00:36:22.420 --> 00:36:25.539 R &D -focused stabilization. It's a classic corporate 00:36:25.539 --> 00:36:29.150 morality play. It has all the elements. Greed, 00:36:29.150 --> 00:36:32.150 hubris, a dramatic fall from grace, punishment, 00:36:32.329 --> 00:36:34.789 and finally, a long, difficult road to redemption. 00:36:35.010 --> 00:36:36.690 But I have a question about that redemption. 00:36:36.849 --> 00:36:39.070 That's the part I keep coming back to. Go on. 00:36:39.170 --> 00:36:42.670 Is it real? Is the redemption genuine? That is 00:36:42.670 --> 00:36:44.670 the multi -billion dollar question, isn't it? 00:36:44.730 --> 00:36:47.329 They changed the name. They fired the bad guys. 00:36:47.949 --> 00:36:50.869 funding phase three trials, I get all that. But 00:36:50.869 --> 00:36:53.110 when I see them fighting in court with every 00:36:53.110 --> 00:36:55.650 legal tool they have to keep a cheaper generic 00:36:55.650 --> 00:36:58.650 version of Zeefax and off the market until 2029, 00:36:58.909 --> 00:37:02.690 isn't that just a more polite lawyer approved 00:37:02.690 --> 00:37:05.329 version of the same old aggression? I see your 00:37:05.329 --> 00:37:08.610 point. In a way, yes, the aggressive spirit is 00:37:08.610 --> 00:37:11.210 still there. But here's the crucial nuance, I 00:37:11.210 --> 00:37:14.610 think. Defending your patents in court as aggressively 00:37:14.610 --> 00:37:17.659 as possible. is standard operating procedure 00:37:17.659 --> 00:37:19.880 in the pharmaceutical industry. Everybody does 00:37:19.880 --> 00:37:21.639 it. Everybody does it. Pfizer does it. Merck 00:37:21.639 --> 00:37:23.440 does it. AbbVie does it. It's part of the game. 00:37:23.599 --> 00:37:25.780 What Valiant did in the old days, the overnight 00:37:25.780 --> 00:37:29.039 500 % price hikes on old drugs, the fraudulent 00:37:29.039 --> 00:37:31.280 accounting with Philidor, that was not normal. 00:37:31.380 --> 00:37:33.000 That was breaking the fundamental rules of the 00:37:33.000 --> 00:37:35.559 game. So your argument is that they've reverted 00:37:35.559 --> 00:37:38.559 from being, for lack of a better word, a criminal 00:37:38.559 --> 00:37:41.360 enterprise, back to being a normal, ruthless 00:37:41.360 --> 00:37:44.360 pharmaceutical company. Exactly. They're playing 00:37:44.360 --> 00:37:46.780 the game hard. But they're playing by the established 00:37:46.780 --> 00:37:49.679 rules now. And frankly, they have to. They still 00:37:49.679 --> 00:37:52.800 have billions in debt to pay off from that disastrous 00:37:52.800 --> 00:37:55.860 shopping spree a decade ago. They have no choice 00:37:55.860 --> 00:37:58.420 but to maximize every product they have. It really 00:37:58.420 --> 00:38:01.219 does change how you look at a simple bottle of 00:38:01.219 --> 00:38:04.099 eye drops, doesn't it? It absolutely does. When 00:38:04.099 --> 00:38:05.880 you buy that product, you're not just buying 00:38:05.880 --> 00:38:08.619 saline solution. You're buying a tiny piece of 00:38:08.619 --> 00:38:10.940 a company that survived a corporate near -death 00:38:10.940 --> 00:38:13.519 experience, one of the most spectacular implosions 00:38:13.519 --> 00:38:16.250 in modern business history. So a final thought 00:38:16.250 --> 00:38:18.050 for our listeners. The next time you're in the 00:38:18.050 --> 00:38:20.050 pharmacy and you pick up a product, flip the 00:38:20.050 --> 00:38:22.750 box over, look for the manufacturer's logo. If 00:38:22.750 --> 00:38:24.869 it says Bausch Health, just take a second and 00:38:24.869 --> 00:38:27.590 remember, that little bottle has seen some things. 00:38:27.829 --> 00:38:30.230 It is a true Wall Street survivor. That's all 00:38:30.230 --> 00:38:31.909 we have for this deep dive. We'll see you next 00:38:31.909 --> 00:38:32.849 time. Stay curious.