A key part of the Valeant bull case is that they are extremely diversified as to their product mix and that diversification reduces the risk of competitor products or patent cliffs.

Indeed this slide (data originally from Valeant but slide from the Bill Ackman presentation) projects the top ten and the next ten products as a percentage of total sales:

The top ten products - according to this slide - are 18 percent of sales. The next ten 12 percent of sales. This is much less concentrated than traditional pharma: at Merck and Pfizer the top ten products supposedly represent approximately 50 percent of revenue.

But like all stock market numbers I like to put them through the plausibility test.

What we are saying is the top ten products average 1.8 percent of sales each. The next ten average 1.2 percent.

Now lets just - for the sake of argument suggest that the top product is 3 percent of sales. And the next four average 2.3 percent. Well then the first five are 12.2 percent of sales - and the next five can only be 5.8 percent of sales (or they average 1.16 percent of sales).

But oops, that is too much concentration - because we know the next ten average 1.2 percent of sales. In fact it is far too much concentration as product number 11 needs to be more than 1.2 percent of sales.

I have fiddled with these numbers and they imply a distribution of sales flatter than I have ever seen in any product or category. In order to make the numbers work the differences between product sales have to be trivial all through the first fifteen products.

And remember these products treat a wide variety of ailments. Products injected in a dermatologist's office have a different sales profile to say acne cream or psoriasis treatment or the treatment for cold sores or herpes simply because there are different prevalence of these conditions in the real world and a different willingness of people to pay for product.

The real world is has skew.

Except that at Valeant everything is as flat as a pancake. Far more perfectly even than almost any real world distribution I have seen for a variable with as wide an underlying diversity as medical ailments.

Color me skeptical.

John