Valeant's business relationships with its distributors are under scrutiny once again, with the latest probe focusing on the remarkable sales performance of elderly antidepressant Wellbutrin XL.
The Canadian company's second-biggest product, Wellbutrin XL continues to deliver growth--despite a decade of generic competition--thanks to hefty price hikes that outweigh declining prescribing levels.
Sales of Wellbutrin XL reached $83 million in the second quarter of this year, up from $64 million in the same period of 2014. In the interim, prescribing levels for the drug have declined from approximately 30,000 per month two years ago to around 16,000 per month.
Analysts at Wells Fargo Securities are now asking who is still prescribing the $47.59-per-pill brand when generics can be had for as little as $1.50.
Their investigations focus on Valeant's dealings with specialty distributor Direct Success and a network of affiliated pharmacies, and follow a Bloomberg report earlier this year that this relationship may hold the key to the drug's longevity.
Their conclusion? The distribution network for the drug is opaque and Valeant's pricing strategy is "unsustainable." Furthermore, the company still faces "unanswered questions related to business practices."
That is a sensitive issue for Valeant, which is already under investigation by federal prosecutors over its links to now-defunct specialty pharmacy Philidor. That probe is focusing on whether insurers knew that Philidor--which helped arrange insurance coverage for Valeant drugs and operated a network of pharmacies--had close links to the drugmaker.
"One of the issues raised in the Philidor situation was the specialty distributor owning several pharmacies that were all part of the same network and allegedly used separate entities to maximize reimbursement," note the analysts. Through their investigations they discovered at least one pharmacy that was filling prescriptions as part of the Wellbutrin XL guarantee program operated by Direct Success.
For its part, Valeant insists that Direct Success only contributed around 5% of Wellbutrin XL sales, although the Wells Fargo analysts say the company was unable to give them a figure that included the affiliated pharmacy network. Either way, the Canadian company confirmed this week it had terminated its relationship with Direct Success.
Previously, Valeant has insisted that Direct Success had no incentive to maximize reimbursement for Wellbutrin XL, adding that the company received a set fee per prescription as well as a discount on the therapy, regardless of whether they get any money from insurance.
The Wells Fargo analysts say they "do not have enough information to determine how Valeant has been able to raise prices of Wellbutrin XL to extreme levels and not see the type of drop-off in sales that has been seen with other branded products facing generic competition."
Given that uncertainty, they are slashing their forecasts for Wellbutrin XL sales as they expect the market to migrate to cheaper alternatives.
"We believe that … the paradigm of being able to raise price aggressively in the face of generic competition--and hoping to still get reimbursement from the group of patients with generous insurance and consumers who do not shop prices of generics--is coming to an end."
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