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How Allergan Rose and Valeant Fell

Not long ago, two pharmaceutical companies found similar ways to escape New Jersey's primordial ooze. But one is still flying high, while the other is right back in the muck.

In the spring of 2010, Watson Pharmaceuticals was a Parsippany-based generics company of middling size. Valeant was a struggling company founded by a Serbian ex-Olympian with a relatively new CEO named Mike Pearson, who had briefly run the company out of an old YMCA about a 20-minute drive away. Watson was worth about $5 billion, Valeant about $2.5 billion.

The two have grown just a bit since then.

Valeant bought Biovail in 2010 for its Canadian tax address and went on an acquisition rampage on the way to a peak market cap of nearly $90 billion. Watson, after a series of deals and its own Irish tax inversion, obtained Forest Laboratories and now-CEO Brent Saunders for $25 billion in early 2014. Saunders snatched Allergan from under Valeant's nose for $70.5 billion later that year. Allergan, formerly known as Actavis, formerly known as Watson, peaked at $133 billion in market cap in July of 2015.

The two used superficially similar playbooks to rise from relative obscurity. Both are highly acquisitive, relatively averse to R&D, and have accumulated huge amounts of debt. Both sell drugs that are aren't always at medicine's cutting edge and avoid high U.S. taxes. But small differences in approach have led to a big difference in outcomes.

Allergan's shares are up 308 percent since buying Actavis in 2012 (and briefly taking that company's name in 2013). It is now selling itself to Pfizer for $160 billion, the biggest pharmaceutical deal of all time...