What can the legal sector learn from the crisis at Valeant?

What can the legal sector learn from the crisis at Valeant?

Lawyers often say they wish they had more input into how to run their businesses from people who are not lawyers, or former lawyers. This is because they feel they benefit from learning how other businesses do things. One such example of a company with a lesson attached is that of the troubled North American pharmaceutical company Valeant.

Fundamentally, Valeant and its current crisis, which is now filling the front pages of the business press on both sides of the Atlantic, is a story of losing sight of the key purpose of the company, that is to say losing sight of making the best possible product for its customers.

What did Valeant do?

Valeant became a global pharma company in the 1990s through a series of combinations with other large pharma businesses. Scale helped it to compete with rivals and its greater revenues also helped to fund the vital research and development (R&D) of new and improved products that would make their customers’ lives better. As one can imagine, developing new drugs to sell to customers was the “base of the pyramid” in terms of running the business. No new drugs to sell = no future business.

But, then some new managers at Valeant had a bright idea, or so they thought: there is no need to develop new products, we will slash research spending and use the extra cash to buy up other pharma companies and the products they already own.

The argument went: why innovate, why spend time nurturing our talent, why invest our own money on building something when we can just build a conglomerate based on other people’s past efforts?

The result would be a much larger business with far lower research costs. It also practised the art of price gouging on its key drugs. Why? Just because it could as it believed it had a monopoly on those kinds of products. And it moved its HQ to Canada primarily to lower the tax it paid in the US, not for any customer-related purpose. A genius strategy some believed. And its share price rose rapidly as belief in the strategy spread through the market (see Table 1).

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About the author:

Richard helps law firms with important strategic decisions. He advises on areas such as merger, practice development and geographical expansion. He also provides assistance to law firms in relation to organisational and operational issues.

Richard has spent over 16 years working in the legal sector focused on the UK and global legal markets. He previously worked at Jomati as a strategy consultant and authored the Jomati Report series between 2009 and 2014.

Prior to that, Richard worked at US-based, Hildebrandt International, and also held senior, legal sector editorial roles in London and Paris.