Prosperity of Valeant Company - Case Study Example

ACADEMIC ESSAY Student’s name Course Unit Professor’s name University Date Introduction In any business, there are several components that are considered crucial for its prosperity. Communication is one of these key components. For smooth running of operations, people in the organization need to communicate so as to avoid misunderstandings. The working environment must be conducive and welcoming enough such that it allows the workers to be able to put their ideas across without fear. This will go a long way in saving the business from risks that could arise from bad decision making as a result of poor communication. In the report below, we shall take an example of Valeant Pharmaceuticals Company which was involved in a price hike saga that led to the drop of its shares, attracted public outcry and a lot of scrutiny from concerned bodies. Background Valeant Pharmaceuticals deals in special drugs in the fields of neurology, dermatology and infectious diseases. It is mostly known for mergers and acquisitions. In the period 2015-2016, Valeant Pharmaceuticals Company was caught up in a scandal that involved price hikes related to the drugs they were selling. For example, Mephyton, one of Valeant’s drugs that helps in blood clotting had been increased eight times from July 2014. The price was formerly $9.37 and had shot up to $58.67 per tablet. Edecrin which is a diuretic had increased from $470 to $4,600 in just a period of one year. This happened in early 2015 when the top management had met to agree to set prices on a new cardiac drug. The chief executive Michael Pearson was however of the opinion that sharp increase would be able to achieve its internal profits. Once it completed its purchase of the drug, the cost was tripled. It was Mr. Pearson’s known habit in yester years of quickly pursuing aggressive price increments on recently acquired drugs. Statement of Problem The major drugs in question that brought the company into spotlight in the price hike saga are Nitropress and Isuprel (Helfland 2015, n.p). The two were not the only drugs involved in the scandal as the company was involved in the hike of prices on 54 other drugs in 2015 alone by 65.6% on average. In 2014, it is reported by Deutsche Bank analysis that 62 drugs were hiked by 50%. The increases were quite substantial. For instance, in 2015, the largest hike was by a drug; Glumetza was 550% more expensive in October compared to its price in January. Nitropress and Isuprel were hiked up by 236.6% and 536.7% respectively (Helfland, 2015 n.p). Consumers of Valeant complain about its habit of purchasing existing drugs and consequently raising the prices exorbitantly and in a short span of time. They are of the opinion that the new drugs should be developed. Valeant would however not answer any queries with regards to their pricing procedures over the phone when asked about it. In light of the communication techniques studied in this unit, communication is seen to be the most prevalent issue given that it is a known habit for the Valeant Company to be hiking prices without prior consultation with top management. It is seen as a lack of cohesion given that decisions are made quickly and there is no time to weigh the pros and cons that may arise from the decisions. The decisions made overnight to increase the prices is only targeting on increasing the internal profits of the company without considering the parties involved such as the investors and customers. The loyal customers may not be able to afford the new prices as people work within a limited budget with the limited resources that are available for medical expenses. In an interview with the Canadian Broadcasting Corporation (CBC), Mr. Pearson said that the company was rather aggressive in boosting the prices of its drug products. Valeant is just one of the many examples of the practices but on the extreme side that have been taking place in the pharmaceutical industry for a number of years. The lack of control on prices have made the manufactures to heavily rely on price increments in order to maintain a steady flow in revenue and profits. In addition, Valeant is known for acquiring companies and retrenching their employees so as to maximize on savings. A small percentage of their revenue is used on research and development, about 3% (Pollack & Tarvenise, 2015 n.p) Consequences Following the constant and exorbitant price hikes, the company has been subjected to scrutiny on some of its drugs. This has led to a major drop in its shares value at least by 75% (Lynch & Ingram, 2015 n.p). Running presidential candidates notably Hillary Clinton called for efforts on bringing the issue under control following a public outrage. Democrats also demanded the issuance of a subpoena on Valeant Company with regards to information on the huge price increases on two drugs that had been acquired in February 2015 after they declined to submit the documents needed in order to investigate the shooting prices. Government influence on the issue poses a major threat to the pharmaceutical industry as severe action may be taken on those found guilty of the charges. Although Valeant lost about 25% of its value in stock, it was still selling at six times more compared to half a decade ago in September 2015. Valeant’s main point of defense was factored on a variety of reasons such as the clinical benefits and the value accrued from the drugs that are beneficial not only to the patients but also to the physicians and the society at large. It claimed that the company offered various financial assistance programs to ensure that the no one would be locked out in accessing the drugs needed. In June 2016, Valeant Pharmaceuticals had a loss of $373.7 million in the first quarter just a year later as in June 2015 around the same period it had recorded a profit. The company’s shares were also down as low as 18% as of June 2016. The expected revenues for the year ending 2016, they are projected to come down to $9.9 billion from $10.1 billion. This is quite below the previously projected revenue of $11 billion. The beginning of 2016 has not been a smooth journey for Valeant since shares dropped to 72% as the stock went down to 88% (Udland, 2016 n.p). The company has also lost a number of investors given that they are beginning to see the disadvantages of being involved with such businesses. Citron did an expose on the company’s relationship with Philidor that gave the investors cold feet (CAN, 2016 n.p). While price hikes might be able to generate high earnings and stock gains, it comes at a cost of a large mass of people whereas only a handful gain (Morgens, 2015 n.p). Such incidences often lead to public outcry and attracts unwarranted scrutiny from various bodies. Analysis There are many reasons that could have led to the poor communication for Valeant Company. One could be psychological noise. This is considered as one of the factors that could contribute to blockage in effective and efficient communication (Pearson & Nelson, 2000 n.p). When certain thoughts appear in one’s mind when he/she is supposed to be concentrating on another issue, chances are that the attention required for the issue at hand will be ignored by the psychological noises. This could have been the case with Valeant members who failed to raise their concerns in the board meeting leaving the chief executive to make decisions single handedly making him resign to settling on his habit of price hiking. It could also be that when the receiver and the sender of the message were conveying the information at the same time which caused an overlapping hence both parties were unable to get the message clearly. For communication to be effective, one party must bear the message while the receiver must provide full attention. Given that the board consisted of given number of people, the dynamics of the group ought to have been incorporated in group dynamics suitable for group communication. Each member ought to have been involved in the decision making process. All is however not well at Valeant Pharmaceuticals as investors are more concerned than ever especially on the accuracy of accounts (Eavis, 2016 n.p). Its credibility is questionable in the eyes of the public and may take a long time to recover a long lasting image and reputation. Problem Solving Price hiking may not have been the major problem for Valeant Company. The underlying problem seems to be deeply rooted in the communication department. In the board meeting, the chief executive, Mr. Pearson was in the habit of quick decision making. It is important to note that the company was not a sole proprietorship hence decision making in companies tend to be slow but well thought out compared to that solely owned. The other members of the board seem to lack the necessary communication skills that would probably enable them to articulate their views on a given topic and not let a single member make the decisions affecting a large number of people. Given that it is a habit, the members over time might have lost a part of themselves and their self-awareness. Their inability to communicate over a long stretch of time is partly to blame as it can be said to have played a part in their disability to question or give a contrary opinion to what another said. There are many solutions that could have been explored to avoid being sued. For instance, if the other members felt intimidated or were unable to put their ideas across for some reason, they should have sourced the intervention of a trusted third party to prevent a one-sided type of gathering. It is also prudent to have a vote of count on all the decisions made to ensure that people remain on the same page. Availing requested information for scrutiny is also important as it eliminates the notion that there is something to hide. Being open and transparent erases question marks and had the company responded positively, the subpoena issued could probably have been avoided. Improper communication skills may have played a part in raising the tension among the concerned parties. In future, the investors need to be weary of the investments they choose to engage in as in the long-run they may tend to be difficult and generate more losses than the expected profits. Conclusion For any business to succeed, communication is an important ingredient. In the case of Valeant Company, they had loyal customers as well as a reputation which was a great competitive advantage against its competitors. The price hikes may have been warranted but the manner in which they were conducted was wrong. In responding to these issues, the company should have undertaken a training to engage the members in a communication class so as to sharpen up their skills. This would go a long way in helping them be confident in articulating their ideas so that the decision making process would be unanimous. It is also a wakeup call for investors to be more careful so as not to fall into traps that could lead into business failures and financial doom. References CAN Finance Exclusive (2016). Valeant Pharmaceuticals (VRX) Stock: Time for a Big Recovery. Eavis, P. (2016).Valeant’s Accounting Error a Warning Sign of Bigger Problems. The New York Times. Gretchen, M. (2015). Valeant’s High-Price Drug Strategy. The New York Times. Helfand, C. (2015). Valeant's Price-hike Strategy goes far beyond Two High-profile Increases. FiercePharma Lynch, N.S., and Ingram, D. (2015). Valeant Hires Attorney, Crisis Management Firm as U.S. Scrutiny Mounts. Reuters. Pearson, J., & Nelson, P. (2000). An introduction to human communication: Understanding and sharing. Boston, MA: McGraw-Hill. Pollack, A., and Tavernise, S. (2015). Valeant’s Drug Price Strategy enriches it but Infuriates Patients and Lawmakers. The New York Times. Udland, M. (2016). Valeant Whiffs on Earnings and Slashes Guidance, and now the Stock is Getting Crushed. Business Insider Nordic Read More