Struggling Valeant needs to stop the bleeding in its dermatology unit if it hopes to get back on its feet. And distribution partner Walgreens may be willing to help.
Valeant shares rose Wednesday after Walgreens management suggested they may be willing to tweak the distribution deal set up last December. It's an accord that’s been losing money for Valeant on some prescriptions.
“You see their situation, and we are very willing to help them in a positive way,” Walgreens co-COO Alex Gourlay said on the group’s Q3 earnings call. “We want to help our part to be more successful in the market.”
Valeant definitely needs that help. Former skipper J. Michael Pearson struck the Walgreens deal to gain some credibility amid controversy over Valeant's price hikes and its abrupt exit from a partnership with the suddenly toxic specialty pharmacy Philidor. But the deal has put a dent in dermatology sales, new CEO Joseph Papa said last month as he lopped $410 million off the unit’s 2016 sales expectations.
“Every time a prescription goes out the door, we’re taping dollar bills to that prescription,” he said.
And Papa, tasked with righting the ship, reportedly has considered multiple options in case Walgreens wasn’t up to restructuring the plan. Those options include hiring a third-party company to help docs secure insurance coverage--even nixing the 20-year pact altogether.
Papa’s old job may be coming in handy when it comes to negotiations. He came to Valeant from Perrigo, which makes OTC remedies that Walgreens and other drugstore chains sell under their own labels.
“We know Joe well from the past from Perrigo, where the group had a very good relationship with Joe and Perrigo,” Gourlay said, noting that “we are in constant dialogue with Joe and the management team.”
That’s reassuring news for Valeant investors who have been wondering whether Papa has what it takes to break with Valeant’s price-hiking, dealmaking past--considering that he employed both those strategies at his previous company.
Papa, though, has insisted that he has other tricks up his sleeve--including potentially selling off non-core assets to pay down debt and reduce the complexity of Valeant’s business. Valeant may just have a taker that could give its skincare unit a boost: Recently, Eduardo Sanchiz--CEO of Spain’s Almirall--said his company sees Valeant dermatology assets “that could interest us.”
“We're studying the situation but waiting for more information," he told Reuters.
- read the call transcript
With new CEO’s dealmaking and price-hiking past, can Valeant change its spots?
Spain's Almirall eyes embattled Valeant's dermatology assets
Desperation drove Valeant to a subpar Walgreens deal, and now it wants to renegotiate
Valeant’s image may have hit a new low after Tuesday’s Q1 call
Valeant slashes guidance yet again as Q1 earnings take a beating
It's official: Pearson out, Papa in as Valeant CEO