VALEANT FINDS CREDIBILITY AT WALGREENS
MONTREAL • Faced with scrutiny over its practice of raising drug prices and distributing them through a controversial specialty pharmacy, Valeant Pharmaceuticals International Inc. has changed its strategy — selling its products at a discount to the largest drug retail chain in the U.S.
On Tuesday, the Laval, Que.-based company announced it was entering a 20-year agreement with Walgreens Boots Alliance Inc., to reduce wholesale prices by 10 per cent for all dermatological and ophthalmological products and sell certain branded drugs at generic prices with an average discount of more than 50 per cent.
After months of being pummelled on the market following subpoenas from U. S. lawmakers over drug price hikes, and controversies surrounding its relationship with the Philidor Rx Services LLC speciality pharmacy, Valeant shares rocketed up 15.9 per cent to $ 149.91 on the TSX following Tuesday’s announcement.
“Investors were looking for a definitive track forward for Valeant in a post- Philidor world with its pharmacy and distribution strategy — and we got a very clear answer today,” wrote Umer Raffat, an analyst with Evercore ISI in an email.
“More importantly, getting Walgreens to sign on is a big credibility boost.”
Valeant climbed to an alltime high of $ 346.32 on Aug. 5 following a rapid expansion through acquisitions and briefly became the largest public company in Canada with a market cap of $116 billion.
In September, the company came under criticism from Democratic presidential hopeful Hillary Clinton over drug price increases — in some cases, as much as 2,500 per cent — and it was eventually subpoenaed by two federal prosecutors.
Valeant’s shares were further battered by reports about questionable tactics Philidor allegedly used to gain more insurance reimbursements for Valeant medicines. These included submitting claims using other pharmacies’ identification numbers and altering codes on some doctors’ prescriptions.
On Oct. 30, Valeant said it would end its relationship with Philidor.
Vicki Bryan, an analyst with Gimme Credit, said she has long been critical of the Valeant model, based on acquiring other drugmakers, slashing research and development, and raising prices.
She says this has created a cycle where it needs continuous acquisitions to bring in more cash- generating products in order to reduce the company’s $ 31- billion debt load.
“At this point what we see is Valeant has to consistently keep up this strategy of buying the assets and gutting the assets,” Bryan said.
“The f ounding tenet of every bit of their strategy is under threat.”
Although Valeant has not explicitly stated what it stands to gain from the deal with Walgreens, analysts say it appears the company is attempting to regain revenue by increasing the volume of product it sells, rather than prices.
The Walgreens agreement will cover many of the drugs that had been distributed through Philidor, including Jublia, a toe fungus treatment, and Solodyn, an oral antibiotic for acne.
“This deal is very important for Valeant, demonstrating that it is being forced to roll back prices which will likely shrink margins as I anticipated, and that this is necessary for Valeant to restore revenue channels with credible distributors like Walgreens,” Bryan said.
“This deal won’t preserve Valeant’s inflated profits but it will open the door for simi- lar arrangements elsewhere that will keep revenue from falling off a cliff,” she said.
Valeant says that while this deal was not driven entirely by the recent controversies, it did have an influence.
“We have listened to what the marketplace is saying and we’ve taken positive steps to respond,” chief executive officer Michael Pearson said in a news release.
By discounting its products at over 8,000 Walgreens retail outlets as well as additional participating independent pharmacies, Valeant says the move will save the U. S. health system up to US$ 600 million a year.
This arrangement is also a first for Walgreens, which has hired a firm headed by former Utah governor Michael Leavitt to assess the model and evaluate its benefits to patients and markets.
“We’re always looking for new or innovative ways to ex-
The founding tenet of every bit of their strategy is under threat
pand the products and services that our customers want and need and also to develop health- care agreements that will advance patient care and cost savings,” Walgreens spokesman M ichael Polzin said.
“We want to make sure that the benefits of this agreement are evaluated and ensure that they are delivering the value that they are intended to.”
Valeant is scheduled to hold an investor day on Wednesday where it is expected to reveal more details about the Walgreens agreement as well as the company’s plans moving forward.