Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

It should have been a pretty decent weekend for Valeant.

The controversial pharmaceutical company filed its long awaited 10-K, averting the possibility of default for now. Its current and former executives emerged from a congressional hearing last week mangled but alive. A new slate of board members was nominated Friday, a new CEO is incoming, and the company conceded at Wednesday's hearing that it has been too aggressive on drug prices, suggesting the turning over of a new leaf.

Hedge-fund manager and Valeant board member Bill Ackman gave a rosy view of the company's prospects on CNBC Monday, touting new leadership, saying the company has made major progress already, and calling it "the cheapest large company" he'd seen in his career. 

Ack, Man

But not everybody is ready to accept that Valeant has gone good. Warren Buffett leveled a broadside at the company over the weekend at Berkshire Hathaway's annual shareholder meeting, calling its entire business model "enormously flawed." Berkshire Vice Chairman Charlie Munger was even less diplomatic, calling the company "a sewer" and its price-hiking proclivities "outrageous." Buffett seemed skeptical of Valeant's promises to reform; on CNBC he suggested it publish drug pricing updates on a monthly basis so its progress might be measured. 

Responding directly to Buffett and Munger, Ackman said Valeant wasn't a sewer and that they shouldn't indict a whole company based on the mistakes of a few people. 

But the pair's comments are a reminder to Ackman -- the erstwhile Baby Buffett -- and to incoming CEO Joe Papa that scrubbing the company's reputation is not going to take just weeks or months. It's going to be tremendously difficult to shift to a business model that is not, as my Bloomberg View colleague Matt Levine puts it, mostly "arbitraging the insurance system to pay for drug-price increases." Though it's hard to find a new smoking gun in the company's 10-K, it doesn't paint a picture of a company in perfect health, and Buffett's comments haven't helped. Shares fell as much as 10 percent on Monday. 

Still Down
Valeant finally filed its 10K and avoided technical default, but its share price continues to tumble.
Source: Bloomberg
Intraday times are displayed in ET.

Buffett's skepticism is warranted. This isn't a company that made a few isolated price mistakes. Valeant increased the price of more than 70 drugs by more than 10 percent each in early 2016 alone, according to DRX data. An analysis of changes in manufacturer prices found that Valeant's average price hike across 147 drugs was 75.6 percent in 2014 and 2015. 

Price increases have been so central to the company's strategy that if Valeant actually follows through on its promises, then Papa might have to start his tenure as outgoing CEO Mike Pearson did after returning from an illness in March -- by cutting guidance. 

Shifting its reputation may take bigger concessions than the company realizes. At last week's hearing, for example, Ackman suggested there could be a blanket 30 percent price cut on Nitropress and Isuprel, two heart drugs on which Valeant massively hiked prices after acquiring them. Thirty percent is impressive in a vacuum, but it's not much when you consider the initial price hikes were more than 200 and 500 percent, respectively.

Historically, price increases made up about 50 percent of the company's sales growth, and a lot of its assets were acquired with price hikes mind. It will be hard to kick that addiction.

And issues abound with its best-selling products. Xifaxan, its top seller at $205 million in the fourth quarter of 2015, may face generic competition sooner than Valeant would like. Wellbutrin, its second-best seller in the same quarter, is a decades-old antidepressant on which Valeant has raised prices substantially. Diabetes drug Glumetza now has generic competition and is being specifically avoided by at least one pharmacy benefit manager. And so on.

There are other warning signs to be found in the 10-K if you look for them. Gimme Credit senior analyst Vicki Bryan wrote in a note Friday that a high percentage of Valeant's reported total assets are intangibles, which includes $18.5 billion in goodwill -- more than Valeant's current market cap. The company had already disclosed it was being investigated by several government agencies, and more investigations were revealed in Friday's filing. 

"Valeant's true operating trends are still in serious decline," Bryan wrote, given that significant price increases likely won't be sustained.

It's easy for Ackman to say Buffett's comments refer to the "old Valeant" or the actions of a few people, but the company still has to prove it can truly change. There are lots of new faces, but a lot of old problems need fixing. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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