Valeant Pharmaceuticals ($VRX) became a Wall Street darling with classic private-equity-style M&A: buy, merge, cut costs, repeat. Along the way, CEO J. Michael Pearson promised that his company could grow what it bought, but kept on buying anyway.
Turns out, some of that "organic" growth might not have been growth at all--and depended quite a bit on price increases. But a lot of questionable promises have come home to roost at Valeant over the past 6 months, and Pearson now says he's backing away from, a., his previous price-hike strategy; b., his reliance on M&A; and c., the opaque, oddball accounting that put Valeant's financial reality behind a rope and bouncer, accessible only to a select few.
But Tuesday, along with 2016 guidance that sent shares into a nosedive, Valeant made a deal that shows it's not abandoning all its tactics: The company signed on to market Orexigen's ($OREX) obesity drug Contrave, just after Takeda ditched it in the U.S. The deal covers 18 European countries and Turkey, with the drug selling under the brand name Mysimba.
Why? The obesity drug market is a shambles, and Takeda had good reason to abandon the product and Orexigen. Leaving aside the trial-data fiasco that put Orexigen on the hook for a replacement study, Contrave has failed to delight doctors and patients and payers, managing only $53 million in sales last year despite Takeda's throwing hundreds of reps, and millions of dollars in direct-to-consumer marketing, at the product.
Valeant apparently thinks it can do better. And that's despite the fact that last week, a former FDA official urged regulators to put restrictions on the drug, particularly in light of a JAMA study suggesting it might not be safe for long-term use.
Valeant thought the same thing when it picked up Dendreon's prostate cancer therapy Provenge last February. Valeant bought the drug and other Dendreon assets out of bankruptcy, because that treatment had failed spectacularly, bringing the company crashing down with it. Valeant paid $400 million to bring Provenge into its own fold, seeing it as a foothold in the lucrative oncology market.
Never mind that Valeant had no previous oncology experience, and that Provenge remained a difficult to administer, expensive drug competing with some very effective oral meds. Pearson said the cancer drug was a good match with his company's business model, "with strong market growth, a concentrated specialist set of prescribers, where relationships really matter, a favorable reimbursement regime, and a market that other pharma companies are beginning to de-emphasize." For the third quarter of 2015, Provenge brought in $69 million, less than it did the same period in 2014.
Valeant also thinks it can rehab brodalumab, the anti-inflammatory drug that Amgen ($AMGN) and AstraZeneca ($AZN) were working on together until last year. Amgen bailed out after unexpected side effects emerged in a clinical trial; AstraZeneca bailed by handing it off to Valeant in a $445 million deal. The psoriasis med is now under review at the FDA; if and when it's approved, it will enter a very competitive market that's getting more competitive all the time. It will be up against powerhouse pharma marketers at Novartis ($NVS), for one, who pumped their early entrant Cosentyx into $261 million in sales last year after its February approval. And as Amgen noted, it might well have a restrictive label that hampers its ability to compete with those meds.
And then there's Addyi, the female libido drug that squeaked through the FDA approval process after being abandoned by Boehringer Ingelheim and rejected at the agency twice. Valeant picked bought its latest developer, Sprout, for $1 billion as the drug won FDA approval.
Despite a flurry of media coverage--with some advocacy groups calling the drug a feminist victory--Addyi just isn't selling, at least not yet. Maybe that's because it, like brodalumab, comes along with some troublesome side effects--including fainting, which gets much worse when women drink alcohol--and because it really doesn't work all that well, as recent JAMA data showed. An average increase of one-half of a satisfying sexual encounter a month, in return for a black-box warning against alcohol, plus other side effects risks? Doctors and women may be more practical about such things than Addyi's backers thought they'd be. No wonder Wells Fargo analyst David Maris suggested recently that Valeant might have overpaid for Addyi.
Valeant's quixotic confidence in all these products begs the question why. What's so special about Valeant's marketing sauce that it could make a success of drugs with heavy baggage and/or prior failures? The tactics it's used to grow the toenail fungus drug Jublia, perhaps? That drug is now blacklisted by a couple of key payers. Big price hikes that yielded growth for Glumetza, Nitropress and Isuprel? That style of revenue growth is now off the table, Pearson says.
Like all the other questions about Valeant, this one won't be answered until time--and the promised new "transparency"--deliver real information.
- see the Valeant release