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Photo: Christinne Muschi/Reuters

The fall of Valeant Pharmaceuticals International is an epic, ongoing morality play, rife with allegations of dubious business practices, deception and clashing egos. As management tries to fix the troubled Laval, Que.-based firm, it’s clear the situation is worse than it first appeared.

The trouble started back in 2015, as Valeant’s strategy to jack up drug prices came under fire in the U.S. The next bombshell was that Valeant had directed sales to a previously undisclosed specialty pharmacy it controlled. A new CEO, Joseph Papa, took over from Michael Pearson in May, and he put on a brave face throughout the year, embarking on asset sales to pay down Valeant’s US$30 billion in debt. But that plan has run into snags. In the third quarter, Valeant recorded a $1-billion goodwill impairment charge to write down the value of some its U.S. businesses. Valeant has been trying to sell Salix, the gastrointestinal drug division that’s considered a crown jewel, but talks with buyer Takeda Pharmaceutical Co. reportedly broke down in November over price.

It’s worth remembering that imperiled companies take a long time to improve. Problems tend to be hidden well below the surface, and unpleasant surprises will always emerge. It may even help to assume the worst.

The new leadership at the company, at least, is doing its very best to lower everyone’s expectations. “It will be a down year,” CFO Paul Herendeen said on a November conference call. (Indeed, year-to-date, Valeant’s stock has plummeted 84%.) After unbounded optimism about the sustainability of a shaky business model gutted the company, Valeant could use some humility.

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