It’s been one year almost to the day that Valeant Pharmaceuticals Intl Inc (NYSE:VRX) began what can only be described as a nightmare. Since the now-infamous Sept. 21, 2015 tweet from Democratic presidential candidate Hillary Clinton that vowed to take aim at specialty pharmaceuticals, VRX stock has fallen 88%.
It has been a storied 12 months as well, chock full of things like accounting restatements, Senate hearings, an ousted CEO and the threat of a technical default on its debt, each of which ultimately pointed to the fact that Valeant Pharmaceuticals’ entire business model was built on extortion-like drug-pricing policies.
You’d think after such a beating that VRX would have learned its lesson.
You’d be wrong.
Valeant Pharmaceuticals Shrugs Off Senate
While Valeant has been through several superficial changes of late (most of them out of necessity), one of the highest-profile tweaks ultimately came at the “request” of the Senate Special Committee on Aging. The committee in May brought the proverbial hammer down on Valeant’s habit of buying specialty drugs with little to no competition, then raising the price on those drugs to painfully high levels.
Cases in point: Heart drug Isuprel saw more than a 500% increase in its price after VRX acquired it. The price of Nitropress soared 200% after it was added to the Valeant portfolio.
Valeant even formed a Patient Access and Pricing Committee, led by none other than new CEO Joe Papa, who was hired to (among other things) restore Valeant’s image.
The first salvo in that effort was a sizable price break on and Isuprel and Nitropress. For larger customers, Valeant Pharmaceuticals promised a price break of as much as 30%.
Four months later, most hospitals have yet to see any significant price cuts, if they’ve seen any at all.
Giving credit where it’s due, Bloomberg did the legwork, recently contacting 23 different hospital companies to inquire about lowered prices for the drugs in question. Eleven had yet to see any relief for the price of at least one if not both drugs. One acknowledged it did see a lower price. (The other 10 did not respond to Bloomberg’s inquiry.)
As it turns out, getting a better deal from Valeant still isn’t exactly easy.
Part of the impasse is the condition that Valeant’s hospital customers must still negotiate a price with the drugmaker to receive any sort of discount. Not every customer was able to get a deal worth bargaining for, however. And at least two hospitals reported that despite several attempts to contact VRX to negotiate a discount, the pharmaceutical outfit never called back.
Valeant Pharmaceuticals Says …
To be fair, some groups are getting a better deal. Premier Inc. — a supplier for thousands of healthcare facilities — said it is getting a discount on the two drugs somewhere in the mid-teens. Vizient also expects to receive a price break that more or less represents the deal Valeant described four months ago. No middleman or hospital yet has reported a figure approaching the 30% the company was suggested possible four months ago.
It’s possible larger deals with Valeant also come with a non-disclosure clause.
It’s possible, though not necessarily likely.
It’s also worth noting that Isuprel and Nitropress are the only two drugs in the Valeant Pharmaceuticals portfolio that Valeant has made a discounted price structure available, perhaps abiding to vow it made to the Senate Special Committee on Aging that didn’t explicitly discuss the company’s other high-priced drugs.
Bottom Line for VRX Stock
On the surface, it seems like a victory for Valeant, even if it’s a loss for hospitals and patients.
In the end, though, it’s ultimately a loss for VRX stock holders, too.
In simplest terms, Valeant has just verified it’s not a company that can be trusted to police itself and its drug-pricing policies. Once again regulators and policy-influencers must step in and scrutinize even more operational details. It’s the kind of oversight no company wants, as that level of scrutiny tends to favor customers and consumers more, and the company and its shareholders less.
Unfair government meddling in a free enterprise system? Sure, but it’s an irrelevant point. Regulators and lawmakers can create more of a headache than disappointed investors can. Sometimes the best thing a company can do is make sure it stays off the regulatory radar.
Maybe Valeant will have figured it out by this time next year. But investors might not want to hold their breath.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
