THE BLOG
06/13/2014 11:15 am ET Updated Aug 13, 2014

Business and America's Future

Back in Chicago, I used to research housing issues for the Urban League chapter there. One of the problems we dealt with was a nasty practice of slum landlords. They would buy up slum properties cheap--very, very cheap. These were rundown structures, but still inhabited by rent paying tenants. What the owner then did was spend no money of any kind--no services whatsoever, and not pay any real estate taxes either. Eventually the building was seized for non-payment of taxes, but till then, all the income was pure profit. A short-term strategy obviously, but quite a lucrative one.

In essence, that is the same approach Valeant is taking in its attempt to buy up Allergen, but on a much larger scale. Mike Pearson, ceo of Valeant, exclaimed that "there is sort of a noble purpose to working in the pharmaceutical industry". Big joke. What he plans to do, if he acquires Allergen, is basically make money by cutting 20% of the employees, essentially dismantling the research division. Allergen spends 17% of its income on research, Valeant only 3%.

This is the same game they played in Chicago real estate, just with a lot more dollars. Buy up a company. Eliminate all costs, especially ones that guarantee a viable future of profitability. Make lots of money off of the existing patents; then when these run out, dump the company, which by then is just a shell of itself anyway. In the meantime, all research ends, no new products are developed, windfall profits climb high.

This is very short-term, indeed. Allergen is hardly moribund right now; its stock is up 290% in the last five years. But that's over the long haul, with steady profits in the future. Andrew Ross Sorkin, a New York Times business columnist, recently wrote how, "Valeant, desperate for ways to increase its revenue, needs a cash cow to milk until it can find the next one."

But the implications here are far vaster, making this not just a business story, but a national concern. Basic research--not applied--is the seed corn of a country's greatness, the investment that helps everything else grow. Not fancy, not glitzy, but fundamental. In the past, this was funded in the United States by a number of sources: the federal government, by universities, and by private business.

So what is happening now? Government is doing less and less thanks to blind and relentless budget cuts. Businesspeople with foresight have been protesting, pointing out how these moves hurt our future, along with harsh restrictions on the flow of immigrants. Frank Bruni, another Times' columnist, suggested talking to "scientists who have long depended on research grants from the National Institutes of Health to keep the United States at the forefront of invention and innovation, and they'll tell you how thoroughly that spigot has closed....They're defeated, despondent."

What about the universities? Clearly this kind of work is still being done there, and always will be. But in the past, a lot of this was supported by government grants, which are now sharply curtailed. So that sector's ability to generate new ideas has been cut back as well.

And who is funding this kind of research now? China is. Singapore is. And American scientists are moving there in significant numbers because, instead of competing for a dwindling pool of grants, they are lavishly supported.

That leaves business, which, in fact, has taken up some of the slack. But not if Valeant has its way. It would destroy Allergen's ability to innovate, and thus diminish this country's productive future. Bill George, professor of management practice at Harvard Business School, asked, "Is the role of leading large pharmaceutical companies to discover lifesaving drugs or to make money for shareholders through financial engineering?" Sorkin wrote that, "Of virtually every big drug company," Valeant "may very well be among the least innovative."

So what Valeant is doing is not just a business decision. They're destroying our seed corn. A friend of mine, a lawyer in Orange County, said that Valeant is "anti-American at its core". This is not a strategy to advance the United States in a new century.