Your Executive Newsletter with Sun Wu, June 29th 2019.
Hi, My Name is Valeant, Tesla’s Secret Fake Project, New Strategy Video and More (Executive Newsletter 06-28-2019)
Friday, June 28th, 2019
Hi, my name is Valeant, and today I want to talk to you about my super profitable business model. I mean, this business model makes me so much money that you’ll probably believe I’m full of shit, but I’m not.

Everything I’m about to tell you is 100 % true, and 200% legal, so anyone can do it. In fact, everybody is doing it.

Here’s our business model in a nutshell:

First, we find a drug with no competition and proven demand. This is critical for the whole model to work, so we MUST make sure that the drug has NO competition and that it has SALES.

No competition, especially from generics, means that it has a strong IP (intellectual property) position, and sales means that there are recurrent buyers of that drug, and recurrent buyers with no generic substitutes in most cases mean people with rare conditions that CANNOT stop using the drug, or they'd probably die or something.

So selling to those captive, recurrent customers is like a having a money printer in your basement.

Second, we launch an effort to buy the company.

The whole thing.

It doesn’t matter if they don’t want to sell. We can just muscle the heck out of them. The old hostile way, remember?

Third, once we own the company, we sell all of their assets and other patents to the highest bidders and get rid of their R&D department. I mean, who needs R&D in the pharma industry, right?

The only thing we keep from that company is that single drug, which has no competition and makes sales to people that can’t live without it.

I mean, they LITERALLY can’t live without it.

Next, and here’s the best part: we jack up the prices of the drug exponentially. And when I say exponentially I mean it. For example, we took the price of the 30-day supply of one of our drugs, Syprine, from around $600 to $20,000, in five years.

Imagine the kind of profits we make.

And remember, we have no R&D, so our costs are just COGS and SG&A.

And because each acquisition is so profitable, we can LBO them with up to 90% debt. Banks rip us off with rates and fees, but we don’t care. We need them because we don't have the balance sheet to pull this off on our own. But we make a lot of money on each and every one of these moves so it is ok if they make some money too.

We all gotta eat, right?

Yes, if your grandma has Wilson disease, she may need a little bit more help to foot the $240,000 bill every year, that’s right, but hey, she has to buy it or else she dies.

We usually see a drop in the volume we sell of each drug after we jack up prices, meaning that some people with rare conditions have to stop using it, but the price increase is so high that our revenues, hence profits, still go through the roof.

And the best part? it is 100% legal.

We ain’t doing anything wrong here, are we?

So, gov can’t do anything about it. They can’t touch us.

And if they, or your grandma, give us a hard time with the price increase, guess what we'll do?

We’ll stop making the drug.

How do you like us know?

You don’t really want that, do you?

You know what? fuck your grandma.

We don’t really care about her. We just say we do, but we don't.

She's gonna die anyway. So a couple of years more or less don’t change anything. We just need to make our numbers.

But don’t give me that look, everybody is doing it.

Turing raised the price of Daraprim from $13.50 a pill to $750 for a single pill, and EpiPen’s prices have gone up more than 400 percent in just a couple of years.

Cancer drugs, insulin devices, and treatments for heart conditions have all increased their price in the same exponential way over the last few years.

So, we are not the only ones. Everybody is doing it.

But the freaking debt load we carry from making this same move more than a hundred times is so much that we can’t lower our prices, or we’ll go bankrupt.

And you don’t want that, right?

Because what would happen to your grandma then?

I mean, you people, especially your grandma, should be grateful that we exist.

She’s alive BECAUSE of us.

Without the drugs we make, she'll be just a dusted memory on your wall.

We’re like saviors to her, so she should be more grateful. And You should be too.

So, are you guys ready to invest in this super profitable business?

Tell your grandma I said hi. She's my favorite.

Tesla's Secret Fake Project
CNBC reported this week that Tesla is working on a secret project to manufacture its own batteries and reduce its dependence on Panasonic, its current partner.

That, in paper, could look like a smart move, but I call BS on it.

It is a bluff.

Here’s why.

To start, anything you do to prevent vendors from becoming too powerful is probably a good idea, and I have mentioned before how a credible threat to integrate backward is a sometimes enough to keep vendors at bay.

The problem with Tesla’s claim, however, is that it is not credible.

Not a bit.


First, because they can’t. Second, because they don't need to.

Let’s start at the beginning: why they can’t. But to do that, please allow me to introduce a basic concept of economies of scale: the Minimum Efficient Scale, or MES.

It is usually said that there is MES in every industry that a company has to achieve to get most of the benefits of economies of scale and operate competitively.

In a nutshell, the concept explains that in order to be competitive in a particular market you need to be at least of a minimum size.

A problem that Tesla would face if they decided to make their own batteries, is that the MES of battery manufacturing is way bigger than what Tesla can chew.

There are more than ten Gigafactories that have been announced already, not only by Tesla but by companies like Mercedes Benz and Johnson Controls, and some experts are already predicting an important excess of battery manufacturing capacity in the next couple of years.

The players in the battery manufacturing arena are many times bigger than Tesla including LG Chem, Panasonic, Samsung and Sony, and those guys are playing the scale game, knowing that they’ll have to subsidize their operations until consolidation takes out competition.

So entering an industry that’s bigger than you, that doesn’t make any money, would be a highly risky move, especially for Tesla, which is having a really hard time trying to make money in its core market.

Adding another money-losing business (they already added Solar City before, assuming the company’s almost $3 billion in debt), would just worsen Tesla’s already bleeding financials. They just don't have what it takes to pull this off and make it out alive.

So, that’s why they cant. Now onto why they don’t need it.

With so much manufacturing capacity available, Tesla would be better off by incentivizing competition for its business among these vendors. These big companies have invested so much in manufacturing capacity that they'd most likely be willing to offer Tesla a good deal for the batteries it needs, even if they lose some money.

That’s an opportunity that Tesla has to take advantage of. They don’t need to start competition in another market, where its players are more aggressive and where there’s no money to be made.

Furthermore, as we explained a few weeks ago, there is a basic rule of value chain integration that you should never do in-house things that third parties can do better and cheaper. That’s kind of value chain 101.

So they really don’t need this, and if they try to pull it off, they will be making the same mistake that Intel did with its integrated Value Chain as we explained a few weeks ago.

The difference here is that, because of Tesla’s critical condition, trying to pursue a fully integrated value chain in a highly competitive market could just put an end to the company.

So, it’s a bluff. And the fact that it was announced on CNBC, which has been very friendly to Musk and Tesla before, makes it more so.

I mean, if it was a secret plan, how come we all know about it?

New Strategy Video
We just published a new video on our website this week where I discuss some ideas on strategy and innovation, based on the research I've done.

This is part of an internal effort to promote corporate workshops and seminars in a more "evident" way (my team complains I don't sell them too hard).

Here's the video, please let me know what you think (not just focus on how good I look, lol).

Checking our now.

Sorry for the late send, but I also have a life, ok?

Talk to you next week.


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