Ahead of Congressional drug pricing hearing later this week, Democratic Members of Oversight Committee posted a public letter detailing their concerns over Valeant Pharmaceuticalst’s pricing strategy (the committee used many internal documents from the company). Basically, Valeant Pharmaceuticals was accused of setting revenue goals and if the goals were not going to be met drug prices would be hiked in order to hit the goal, in some cases as high as 800%. The stock was down 4.37% on the day in reaction to the news, closing at 91.65 in NYSE trading.
Earlier this week there was other Valeant Pharmaceuticals news involving Hillary Clinton.
Ahead of the House hearing,Valeant Pharmaceuticals was criticized by Hillary Clinton for price hikes on a migraine drug (DHE 45) with VRX responding that it sells only a few hundred units per year (PRGO’s generic has much higher share and has also increased in price). ESRX announced the exclusion of VRX’s Glumetza from its formulary, but only upon the entry of generic competition which limits the practical impact of the move beyond the headlines it
generates. However, ESRX intends to prevent Glumetza Rxs from being filled even at WBA pharmacies (we assume using an NDC block).
In a somewhat different area, Morgan Stanley notes in positive news for the Laval, Canada company:
Our proprietary analysis suggests that the real world demand for Valeant derm products have actually not materially changed in the first week of the Valeant-Walgreens agreement; this makes sense since we do not believe physicians suddenly started prescribing a lot more Valeant derm Rx in a single week. Based on the estimated percentage of scripts not running through retail, we adjusted our IMS script data (with slight adjustments built in to account for Philidor’s ramp over time) to create our estimate of VRX’s “true” derm script trends. Our analysis shows that post- Philidor scripts have not changed materially, although we do expect them to accelerate as the Walgreens access program continues to ramp (and physicians respond positively to the new prior authorization and co-pay assistance. We have not run our analysis by Valeant mgmt, so our figures could be off.
Regarding today’s news with Valeant Pharmaceuticals…
Evercore Analysts note:
From a stock perspective, I think the hearing (as well as this letters’ commentary on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) ’s history of price increases) isn’t so critical.
What caught my eye was this paragraph:
On May 21, 2015, then-Chief Financial Officer Howard Schiller sent an email to Mr. Pearson with the subject “price volume.” He wrote: “Last night, one of the investors asked about price vs volume for Q1. Excluding
marathon, price represented about 60% of our growth. If you include marathon, price represents about 80%.
In simple words, Valeant’s then-CFO had emailed the CEO saying price was 60% of growth in 1Q15. (notice I am not using the 80% number cited above because Marathon had just been acquired in 1Q15, and was not a part of YoY “organic” growth calc)
When I go back to 1Q15 earnings call transcript, CEO (Mike Pearson) had said volume was greater driver. : In terms of price volume, actually, volume was greater than price in terms of our growth.
At surface, this means either CEO was inaccurate on 1Q15 call, or CFO’s email to CEO was inaccurate.
OR, it could mean neither had done the math properly when they were asked to make this comment. Getting a true estimate on price:volume contribution for a very large product portfolio (especially when that metric isn’t formally reported/audited) may not be a lay up.
Much of the memo focuses on Valeant’s acquisition of Marathon for CV products Isuprel and Nitropress. The Memo highlights what most on the Street already know, that this was a price-driven deal. However, the memo seems to suggest that this is the norm at Valeant by highlighting an email from an outside consultant to Valeant’s CEO: “In a nutshell, most of the products reviewed (Marathon, Covis, and VRX) are not on the radar and have materialpricing potential.” Again, aggressive price increases on smaller products, where there is often a supply/demand inefficiency is common in the Pharma industry and certainly not limited to Valeant, something that we believe mostinvestors know. Nonetheless, revealing Valeant Pharmaceuticals’s approach here certainly doesn’t help rebuild investor confidence.