A variety of hurdles have hampered specialty pharma in recent months, with politicians and the public bearing down on drug price increases while valuations have fallen and credit access has diminished. Amid these new factors, a Moody’s report predicts that companies in the field will steadily resume their acquisitive ways, but will apply a “refined focus” to future M&A.
In a move away from price increases and cost reductions, Moody’s analysts predict that speciality pharma companies will adapt and instead look to areas of unmet medical need for future buys. The industry will also look to buy companies with pipeline products and those that offer expansion into new markets, Moody's said.
To little surprise for pharma-watchers, Moody's pegs Valeant Pharmacecuticals--along with Concordia Healthcare--among those in the space that face the "biggest challenges." Previously, they used a combination of “rapid acquisitions, high drug price increases and high financial leverage” to drive growth, a strategy that won't likely fly with all of the scrutiny on the industry now. In one such play last summer, Valeant bought Isuprel and Nitropress from Marathon Pharmaceuticals and jacked their prices up 525% and 212%, respectively, before landing in hot water with Congressional investigators for the maneuver.
Valeant “will not be making acquisitions for the foreseeable future,” due to its credit access, the report predicts.
As a result of the new realities, some specialty pharma companies will execute a shift in strategy that poses a risk, Moody’s SVP Michael Levesque said in a release. Valeant, along with Endo and Concordia, are now in “deleveraging mode,” Levesque said, “which will give them time to reassess their strategies and long-range plans.” The report notes that other companies, such as Alkermes and Jazz, haven't relied as much on the tactics and will face their own individual challenges.
For Valeant, its remaining investors are likely running out of patience as the drugmaker’s shares have fallen from a high last summer of more than $250 each to about $25 on Friday. No single event drove the downfall; accounting errors, guidance slashing, channel-stuffing allegations, pricing investigations, and a shady speciality pharmacy relationship all played their part. On Tuesday, the company again lowered its guidance as it seeks to dig out of the slump under new leadership from CEO Joseph Papa.
- here's the release