Valeant is finally getting some good news to close out the year.
The specialty pharmaceutical and device company has struck a deal with Walgreens that will extend Valeant’s distribution reach into the retailer’s 8,000-plus stores.
Valeant shares rose about 11% in advance of the opening bell.
As part of the partnership, Valeant will slash dermatological and opthalmological products distributed via Walgreens by 10%.
“We have listened to what the marketplace is saying and we’ve taken positive steps to respond,” said J. Michael Pearson, chairman and chief executive officer of Valeant.
The news precedes Valeant’s investor day, coming up on Wednesday, where the company is expected to give an update on its business. It has been hammered by a lingering scandal over its Philidor mail-order pharmacy business. Other retailers, including CVS, have severed tiesbetween its Caremark prescription benefit provider and Valeant’s mail-order arm.
Valeant is also under investigation from state and federal officials inquiring into its drug pricing practices.
In October the company announced that it will end Philidor’s operations in early 2016. Investors were worried that as a key distributor, the loss of Philidor would harm Valeant’s business. This Walgreens deal should help with that.
In an interview with CNBC following the announcement, Pearson said that Walgreens should “more than make up for the loss of Philidor.
“We’re bypassing the traditional pharmaceutical distribution system which allows us to save a substantial amount of money,” he said.
As part of the deal,Valeant will deliver drugs to Walgreens on consignment and they’ll be sold directly to payers. In some cases, he said, generic branded prices will drop at least 50%.
He also said that Valeant would be offering its brand name drugs at generic prices where generics are available.
CNBC host Becky Quick interjected a key question there — if Valeant is able to offer brand name drugs at these low prices, how does that help the company’s bottom line. Does that mean the middle men being cut out in the Walgreens deal were adding so much cost to the drugs that now Valeant has the ability to lower prices or will Valeant be taking a loss?
“I’m just confused when you say this will help you make money,” she said.
Pearson replied that Valeant would make money based on the volume of drugs sold.
“What we want is strong growth and volume growth but the skeptics have said it’s all price,” he said.
What the skeptics have also said about Valeant for years is that it’s a company that relies on acquisitions to grow. As a result, the company has accumulated a ton of debt. Pearson said that instead of doing new deals in 2016, the company will spend the year paying down that debt.
“Our model does not depend on acquisitions, but it was enhanced by acqusitions,” he explained.
So far this year, shares in Valeant are down more than 33 percent.
Source : www.businessinsider.com
Author : Jonathan Marino and Linette Lopez