Desperation drove Valeant to a subpar Walgreens deal, and now it wants to renegotiate

Walgreens

Valeant is trying to rework its distribution deal with Walgreens after admitting Tuesday that the agreement is losing the company money on some prescriptions. But how did it get there?

According to the Financial Times’ sources, it was desperate times that called for desperate measures. On the heels of terminating its relationship with specialty pharmacy Philidor--which was at the center of channel-stuffing claims lobbed at the company last fall--Valeant was in need of a reputation boost. And Walgreens provided it--for a price.

The drugstore chain’s CEO, Stefano Pessina, negotiated a highly favorable deal for his company in exchange for lending its support, the sources say. The details: Walgreens nets a fee for dispensing Valeant’s drugs whether or not Valeant is reimbursed. And about 25% of the company’s products sold through Walgreens are dispensed without securing prior authorization from insurers--a much higher proportion than at Philidor, the FT notes. That leaves Valeant in the lurch if insurers won't pay.

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“Every time a prescription goes out the door, we’re taping dollar bills to that prescription,” as new CEO Joseph Papa said on Tuesday’s Q1 call with shareholders.

Valeant, for its part, is “confident that we will be able to resolve the issues in the near term and improve the patient and prescriber experiences,” a spokesman told the newspaper, and Papa on Tuesday said he was “very committed” to doing so.

But if he can’t restructure the deal, he’s up for terminating it, sources told the FT--and he thinks a “material adverse change” clause in the contract will give him the legal footing to do just that.

Papa is also contemplating a couple other routes, and those include hiring a third-party company to help doctors secure insurance coverage when they write prescriptions. He’s held talks with CoverMyMeds, a private group based in Ohio. And then there’s the option of requiring patients to shell out on their own meds, such as upping co-pays or giving one script away for free, but requiring customers to pay for refills in cash.

- see the FT story (sub. req.)
- see Valeant's 10-Q

Special Report: The most influential people in biopharma today - 2016 - J. Michael Pearson - Valeant

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