Why Did Valeant Pharmaceuticals Fail?
The Price-Hike Machine From $90B to $5B
📜 What Happened
Valeant looked like the perfect 'quality' business on paper: spectacular margins, soaring returns on capital, and a stock that rose from $30 to $263. The engine: acquire old drugs, then raise prices relentlessly — 2,000% on some, 500% on others — plus a pharmacy (Philidor) used to push its own products. Bill Ackman of Pershing Square bought in at ~$200, calling it 'a wonderful business'; short-sellers called it fraud. In 2015-16 the truth arrived: the accounting was restated, the price hikes were politically radioactive, the debt was $30B, and the stock collapsed to under $10. Ackman eventually sold at ~$11 — roughly a $4B loss with an 'I was wrong' that cost a fortune to say.
☠️ The Fatal Mistake
Manufacturing return on capital from pricing power without a moat — the returns were real on paper and imaginary in any competitive future.
🧠 The Lesson (Free for You)
High ROIC is only as valuable as its source. Valeant's lesson: when returns come from squeezing customers rather than from a durable advantage, the 'quality' is a short against the future — the same formula that looks like Greenblatt's dream in year one is the court's nightmare by year five. Ask where the return comes from before you celebrate it.
📕 The Antidote Book
Greenblatt's famous simplicity: rank the whole market on two factors — business quality (return on capital) and cheapness (earnings yield) — buy the t…
📖 OPEN THE FULL INTERACTIVE BREAKDOWN →Searchable, filterable, free to read — they paid billions; your lesson is free.