Valeant notches big win with 20-year Walgreens distribution deal, but slashes earnings forecasts
- Valeant Pharmaceuticals on Tuesday announced that it had struck a major distribution deal with pharmacy giant Walgreens in an effort to move beyond its tumultuous (and now defunct) relationship with specialty pharmacy Philidor Rx. On Wednesday morning, the company also significantly slashed its 2015 earnings and sales forecast.
- Walgreens will dispense branded drugs across a number of Valeant's therapeutic portfolios without actually having to purchase the inventory from the firm. Instead, the drugmaker will retain ownership over the therapies and ship the products to the pharmacy, which will enjoy distribution and dispensing fees for its efforts.
- Under the 20-year deal, which was announced a day ahead of Valeant's investor day on Wednesday (more on that below), Valeant will also be axing prices on its branded dermatology and ophthalmology franchises by about 10% within the next year, as well as for other branded medications such as the diabetes med Glumetza (whose price Valeant bumped 8-fold after acquiring it). In fact, the New York Times reports that 30 brand name therapies will be sold at the price of their generic competitors under the deal, whose announcement sent Valeant shares soaring 16% on Tuesday. The controversial female libido pill Addyi will also be included as part of the Walgreens arrangement.
- The drug giant also slashed its 2015 Q4 and 2016 year-long earnings forecast on Tuesday during a conference call with investors. Instead of expected revenues of $11 billion to $11.2 billion in 2015, Valeant now expects $10.4 billion to $10.5 billion.
- The company also forecasts earnings before interest and taxes of $6.9 billion to $7.1 billion in 2016 compared to previous estimates of $7.5 billion, but significantly higher revenues compared to 2015. Valeant plans to cut debt by about $2.25 billion in 2016.
One thing's for sure: After a topsy-turvy 4th quarter, Valeant isn't willing to go down without a fight.
The company had announced that it was laying out a new dermatology program for patients soon after the Philidor Rx debacle (which included accusations of shoddy accounting and business practices) and severing ties with the mail-order pharmacy.
But the Walgreens deal is a far more aggressive move than might have been expected, underscoring that Valeant execs including CEO J. Michael Pearson understand the extent of the scrutiny their firm is facing and the havoc it could wreak on business.
"We have listened to what the marketplace is saying and we’ve taken positive steps to respond," said Pearson in a statement. "Our goal is to create a system that allows prescription medications to be dispensed and insurance claims adjudicated in an efficient manner while allowing physicians to focus their efforts on what matters most: patient care."
Valeant shares had plummeted anywhere from 60%-70% over the past three months on the heels of the Philidor accusations and ongoing Congressional and regulatory inquiries into the drugmaker's pricing and distribution models. Clearly, the firm is attempting to show that it's shifting its strategy significantly with the new distribution deal and planned price cuts.
Those changes are also extending to Valeant's earnings and sales guidance. Part of that is undoubtedly due to the loss of Philidor, which accounted for about 7% of Valeant revenue in Q3 2015, as well as the lingering downward pressure that scandal has placed on physicians' willingness to prescribe Valeant drugs.
Pearson had previously said that Valeant would take a short-term hit, including by focusing on debt reduction, in order to ultimately secure long-term gains.
Here's the 2016 vs 2015 guidance:
Valeant shares went up another 5% in early Wednesday trading. They are now trading at their highest level since October 21.
- New York Times Valeant Makes Distribution Deal With Walgreens
- New York Times Valeant Pharmaceuticals Cuts Earnings and Sales Forecasts
- BioPharma Dive Under siege, Valeant chief insists short-term hits will give way to long-term gains
- BioPharma Dive With Philidor out, Valeant lays out new derm program for patients