Markets

Valeant in Price Cut Deal with Walgreens: Will Investors Gain?

Desperate times call for desperate measures. Valeant Pharmaceuticals InternationalVRX announced that it has entered into an agreement with WalgreensBoot Alliance, Inc. WBA and decided to lower prices by 10% of all its dermatological and ophthalmological products that are distributed through Walgreens retail outlets.

This direct distribution model of Valeant's dermatology and ophthalmology products through over 8,000 Walgreens outlets and independent pharmacies will result in lower costs, which, in turn, will result in savings for both patients and the healthcare system.

What Prompted Valeant to Strike a Deal with Walgreens?

With this announcement, investors should now be able to heave a sigh of relief as Valeant has been making headlines since Aug 2015 for all the wrong reasons like price hike of specialty drugs, erroneous financial reporting and termination of contracts with Philidor Rx Services.

Specifically, this October, the company came under the spotlight because of a massive price hike of two of its drugs - Isuprel and Nitropres. These drugs, acquired by the company earlier this year from Marathon Pharmaceuticals, were used by hospitals and other providers to treat serious heart conditions. Since the acquisition, the company has hiked their prices by 212% and 525%, respectively. As a result, Valeant was accused of having followed the same business model as Martin Shkreli, whose company had spiked the price of Daraprim from $13.50 to $750.

Moreover, Valeant's relationship with Philidor Rx Services, a specialty pharmaceutical company providing back-end services like call center, claims adjudication, IT and logistics support, and compliance/HIPPA regulation guidance to other pharmacies, also came under the scanner after it was alleged that the latter was urging customers to opt for expensive drugs over their cheaper generics.

Terms of the Deal

The tenure of the Walgreens agreement will stretch for up to 20 years and be effective from the first quarter of 2016. The deal will initially cover Valeant's dermatology products like Jublia, Luzu, Solodyn, Retin-A Micro Gel 0.08%, Onexton and Acanya Gel; and ophthalmology products including Besivance, Lotemax, Alrex, Prolensa, Bepreve and Zylet.

The agreement also covers Valeant's over-the-counter product portfolio.

Additionally, Valeant plans to reduce prices of its branded prescription-based dermatological and ophthalmological products, and over-the-counter products by 10%.

Meanwhile, Valeant and Walgreens entered into a separate agreement, whereby Valeant will distribute more than 30 branded products such as Aldara, Tiazac and Glumetza in dermatology, ophthalmology, gastrointestinal and neurology/other therapeutic areas through Walgreens outlets at generic prices. The reduced pricing will be effective from the second half of 2016, and will range from 5% to 95% or a weighted-average price decrease of more than 50%.

The price reduction is expected to result in annual savings of $600 million for the healthcare system.

Moreover, Valeant intends to integrate other independent retail pharmacies under this distribution model.

Our Take

We believe that the deal will somewhat relieve investors who have been bearing the brunt of the massive decline in the company's share prices since Aug 2015. The reduction in prices of the drugs should make them more accessible to patients. Valeant's shares surged 16.4% on the news.

Management is clearly looking to undo the damage done in the recent past. Only last month, the company was planning to offer cash and incentives to important employees in the U.S. in a bid to retain them.

Valeant currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include Corcept Therapeutics CORT and Mylan MYL . Both sport a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

VALEANT PHARMA (VRX): Free Stock Analysis Report

MYLAN NV (MYL): Free Stock Analysis Report

CORCEPT THERAPT (CORT): Free Stock Analysis Report

BAXALTA INC (BXLT): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

CORT MYL

Other Topics

Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More