Valeant Pharma (VRX) Responds To Letter from Congressman Elijah Cummings, but first some analyst comments. Morgan Stanley states: Our expert was less bullish on future growth potential for Valeant’s Xifaxan in IBS-D ($1.1B ’16 MSe incl. all indications; 10% total VRX revs) given potential other alternatives in the market. Our expert only prescribes Xifaxan to ~10% of her IBS-D patients (up from maybe 6% before the indication was added to the label), and she believes that add’l options (such as Viberzi) will limit future growth potential. The doctor estimated that among patients who improve on Xifaxan, they need to take the 10-day treatment course once every six months on average. Since Xifaxan is an antibiotic, it is best used for bloating and pain associated with bloating (which could be caused by a bacterial overgrowth). Just under half of our expert’s IBSD patients have bloating. Interestingly, our expert considers generic antibiotics for some patients as a far cheaper alternative, even though the release of traditional antibiotics is systemic.
Our view: Valeant announced that it has agreed to amended terms with its lenders. This follows VRX’s announcement on March 15th that it would seek amended credit terms and additional flexibility regarding the company’s interest covenant ratio and SEC filings. The terms were generally in line with expectations.
On 4/5/16, VRX announced that the internal ad hoc committee and independent advisors completed their extensive review of Philidor and related accounting matters, identifying NO additional accounting items that would require restatement beyond the initial $58mn revenues. This is notable not only because accounting concerns were cleared, but because the review incorporated extensive interviews and examination of over 1 million documents. The work is now moving to external auditors for completion of financial statements and final sign-off, and VRX has committed to filing its 10-K by 4/29/16. In the meantime, creditors and bondholders have shown flexibility in extending the filing deadline (5/31/16) and waiving cross-default provisions, respectively, providing VRX with additional “insurance” while external auditors complete their review. This comes in exchange for a fee (purported to be $50k per $10mn in term loans, or $55mn, unconfirmed), increased interest costs on the debt, and new financial covenants (with additional cushion), restrictions on acquisitions, and a commitment to pay down debt on proceeds from asset sales. With these changes, VRX’s liquidity position remains sufficient of meeting these obligations for the remainder of the year.
And here is the statement from Valeant Pharma
- Valeant has cooperated with the full committee’s review from the beginning, including providing over 78,000 pages of documents, testifying before the committee on February 4th, and working with the committee to accommodate all of its requests. We look forward to continuing to cooperate with the committee, and will review Congressman Cummings’ letter.