It’s now a truism that the drug industry’s “blockbuster model” has pretty much had its day. Much of Big Pharma is having a terrible time winning approval for new drugs and even keeping up sales of existing blockbusters, in part because their underlying rationale — that pushing drugs into mass markets for chronic disease will yield a steady stream of lucrative sales — also makes it more likely that dangerous side effects or evidence that a drug may not actually work as advertised will eventually crop up.

Of course, no one really knows what might replace blockbusters, or how the drugmakers who grew fat on blockbuster profits will fare as those drugs begin to face generic competition. For a cautionary tale on this front, look no further than the plight of Valeant Pharmaceuticals, a former up-and-comer now in the process of radically scaling back plans to build itself into a global drug giant.

Founded in 1959 as ICN Pharmaceuticals, Valeant was a mid-sized Southern California drugmaker with outsized ambitions. By the 1990s, its controversial founder Milan Panic — a former prime minister of Yugoslavia — had expanded the company into an array of international markets with a bewildering hodgepodge of marketed drugs, many of them acquired or in-licensed from other companies. Valeant had 12,000 employees and 33 factories around the world.

But none of Valeant’s drugs ever became big sellers in their own right, no matter how hard the company pushed them, and adding more and more treatments to its portfolio didn’t do much to redress the balance. (In fact, it’s really difficult to tell just how many treatments Valeant currently sells; it has eleven “core” drugs for skin, neurological and other disorders, but also markets what appears to be another two dozen or so products under various names around the world.) Meanwhile, Panic came under fire for lining his pockets at the company’s expense — he picked up $33 million in bonus pay one year for spinning off a division of the company, and the resulting furor led to his resignation and the election of a new board six years ago.

The company, however, hasn’t been able to patch together a working strategy even in Panic’s absence, largely because of its continuing failure to produce novel drugs. Valeant’s 2007 revenue of $871.4 million, in fact, was only slightly higher than the $838 million it posted a decade earlier in 1998. Now Valeant is laying off nearly half its workers and selling foreign subsidiaries to get its house in order:

The maker of neurology and dermatology drugs said it would lay off 130 employees in the U.S. and Mexico and eliminate 1,250 additional jobs overseas. The company will divest many of its overseas operations in the coming months, Valeant said.

So while it’s a grim time to be holding blockbuster drugs whose monopolies are about to collapse, it’s also a grim time not to be holding any blockbusters at all. Which isn’t particularly good news for an industry beset by scientific and marketing scandals, drug-safety problems, criticism over high drug prices and a sputtering R&D engine.