Is Valeant a piranha or a quality drugmaker? Dermatologist opinions vary, but most back off prescribing

Valeant Pharmaceuticals ($VRX) admits that casting aside its Philidor specialty pharmacy will take a bite out of its dermatology sales. After all, the now-controversial pharmacy had been handling its copay discounts and working with payers on reimbursements.

But Deutsche Bank ($DB) reports that the fallout from the Philidor scandal may be more far-reaching than Valeant anticipates. Two-thirds of dermatologists surveyed by analysts have already ratcheted back their use of Valeant meds, and about the same number expect their prescribing to drop in the coming months. Plus, more than a few of the surveyed docs now take a dim view of Valeant's sales reps.

In a Tuesday note to investors, Deutsche Bank's Gregg Gilbert acknowledged that the survey's sample size was small--25 dermatologists who are active Valeant prescribers--but still, it's instructive to hear their views, not only on their prescribing expectations but also on their relationships with Valeant reps.

You'll recall that Valeant's long-undisclosed relationship with Philidor drew fraud accusations from short seller Citron Research last month, and since then, more allegations have come to light. According to media reports, Valeant employees worked closely with Philidor--contrary to the company's assertions--and the pharmacy aggressively pursued payer coverage for Valeant drugs, allegedly changing scripts to prevent generic substitution and resubmitting claims under multiple pharmacy ID numbers to get the highest possible payments.

Valeant has set up a board committee to investigate the allegations and cut ties with Philidor, planning to shift to a new specialty pharmacy arrangement. A majority of the surveyed dermatologists (68%) have cut back on prescribing Valeant meds since, and the rest haven't changed their habits. None reported an increase. An equal majority (68%) said they expect their use of Valeant meds to decrease as time goes on, with no change expected among the other 32%. Again, no increases expected.

Valeant's red carpet Jublia ad

This is important because Valeant has placed a big emphasis on its dermatology business, and one of its key new launches--the toe fungus remedy Jublia--was a major part of Philidor's contribution to Valeant sales. Valeant shelled out $4.5 million on a Super Bowl TV spot for the med, and since has backed it up with more high-profile advertising. Meanwhile, 44% of the drug's sales were coming through Philidor. The drug brought in $106 million in the third quarter, and, according to The Wall Street Journal, costs more than $1,000 per vial.

The surveyed doctors gave mixed reviews to Valeant's reps and its drugs. Several said they'll back off prescribing because they're worried about payer coverage, now that Philidor won't be handling claims; some of them said they'd resume if Valeant comes up "with a reasonable plan for access to Valeant meds." One hadn't realized how expensive the Valeant brands were, and another had already avoided some of them because of "abusively" high prices.

A little more than one-fourth of the docs said the Philidor news hasn't changed their relationships with Valeant reps. Several worried about the impact of the upheaval on their patients. One said a rep hadn't visited the office since the news broke: "I think I would feel better about Valeant if a representative had met with me." Another said Valeant reps "have been helpful in facilitating my use of their products throughout this issue."

Those are the more positive responses. About one-third of the dermatologists surveyed were more negative--many of them exceedingly so. "Reps are confused/defensive/uncertain," one said, while another said, "I don't trust Valeant and will avoid their products when there are alternatives." Even worse, from another: "It is apparent that Valeant has become one of the top three piranhas of the pharmaceutical companies."

Gilbert says Deutsche Bank isn't changing its Hold rating on the stock because of the survey, but "the results certainly suggest that the Philidor controversy could have longer-lasting effects" than the short-term effects Valeant executives predict.

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