The wealth effect orchestrated by former Fed Chairman Ben Bernanke has helped send financial markets to record highs. The Dow Jones (DIA) was around 8,000 when President Obama took office and exceeded 26,000 since President Trump took the helm. Certain drug companies took advantage of the liquidity in the market by rolling up other drug companies, cutting R&D and hiking drug prices. Valeant (VRX), Mallinckrodt (MNK) and Allergan (AGN) delivered strong top line growth through acquisitions and were rewarded with high valuations.
Now the pharma roll up strategy appears to be done; now it’s time to repay the tens of billions in debt used to fuel these deals. In late 2015 Valeant put a moratorium on deals, vowed to maximize cash flow, pare debt through asset sales and change its image as a drug price-gouger. The problem is asset sales is that the company had to forego cash flow from the divested properties. Several of Valeant’s remaining properties faced loss of exclusivity (“LOE”). The company had to launch new drugs to overcompensate for lost earnings which was not part of its DNA.
