Some on Wall Street are wondering what’s next for Aliso Viejo-based Valeant Pharmaceuticals International in the wake of disappointing third-quarter results and its decision to sell a recently acquired drug.
The company, which has undergone a big makeover in recent years from its days at ICN Pharmaceuticals Inc., faces critical questions about where its growth will come from.
At issue is whether the company continues to merely ride cash cows from the ICN era or seizes upon a hit drug that propels it out of its doldrums.
Analysts are skeptical.
“They need a blockbuster, and there just isn’t anything I think can go into that (role),” said Robert Uhl of Friedman, Billings, Ramsey & Co. in Arlington, Va.
Valeant’s shares fell off a cliff early this month after the company surprised Wall Street with a $12 million loss instead of an expected profit.
As of last week, the company’s shares were off 34% for the year with a market value of $1 billion.
Chief Executive Timothy Tyson, who came from GlaxoSmithKline PLC in 2002 to turn around Valeant, said he’s confident that the drug maker will reverse course.
“Despite the challenges that these issues present to future growth, our base business is remarkably stable and continues to generate strong cash flows,” Tyson said. “As we focus on improving the business for better performance in the future, we will continue to invest appropriately in our pipeline.”
Growth Areas
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Researcher during ICN days: old drugs still key sellers |
Tyson said he’s looking for growth from existing drugs for infectious diseases, neurology and dermatology.
“Our base business continues to generate profits and cash flow, and we have several products that have strong growth potential,” Tyson said.
Among those, Tyson said, is retigabine, an epilepsy drug that’s in clinical trials. Valeant gained retigabine in 2005’s $280 million deal for Xcel Pharmaceuticals Inc. of San Diego.
“Retigabine, assuming positive clinical results, could provide significant revenues once approved and marketed,” Tyson said.
In the meantime, company watchers are growing impatient.
“They’ve been doing this strategy of trying to beat the old product line and get some new life out of it,” analyst Uhl said. “They’ve been successful. But you can only beat an old horse so long before it dies.”
Several of Valeant’s products, including the Bedoyecta vitamin line,its No. 3 seller,date back to its days as ICN. Valeant shed the ICN name in 2003.
Its best-selling drug, Efudex to treat skin lesions, had sales of $78 million last year.
Tyson, who’s been with the company since 2002 and became chief executive in 2005, didn’t respond to the question of whether Valeant needs a blockbuster.
He did say that the company is focusing on what it already makes, and that any strategic acquisitions will fit with the current product mix.
Analyst Uhl agrees with Tyson on one point: retigabine.
“The real hope is going to be retigabine,” Uhl said.
Even epileptic drugs that aren’t considered successful can bring in sales of $300 million to $500 million annually, he said.
“That would be transformational for a company like Valeant,” Uhl said.
Valeant is set to do $875 million in sales this year.
Drug Sell Off
Meanwhile, Valeant is working to sell off some products.
Earlier this month, Valeant said it would sell Infergen, a hepatitis C drug that it paid $113.5 million for last year from InterMune Inc. of the Bay area. Amgen Inc., the Thousand Oaks-based biotech company, originally developed Infergen.
With many symptom-free patients waiting years for potentially more effective drugs, the market for hepatitis C drugs has dropped some 13% per year during the past two years, according to Tyson.
“I never thought it was a very good idea in the beginning” for Valeant to buy Infergen, Uhl said. “It’s only meant for people who have failed everything else.”
Back when Valeant bought Infergen, it was awaiting trial results for taribavirin, a hepatitis C drug candidate that was set to supplant ribavirin, its fading flagship that’s losing sales to generic versions and rival drugs.
But taribavirin came up short of expectations in a pair of clinical trials.
Valeant then decided to do an interim trial to see if the drug might be effective at higher doses and to provide it with information to make a “go or no-go decision,” Tyson said last year.
Valeant now expects to make that decision in the first quarter when 12-week interim clinical data comes in.
During a conference call, Tyson, in response to a question from John Boris, a Bear, Stearns & Co. analyst, said the decision to drop Infergen had no relation to taribavirin and that it was likely it would take three years before the drug was in the marketplace.
Valeant has “definitely (been) going through a slow spot here for a while. I think that most people really don’t have much (expectation) for them,” Uhl said.
Not everyone has given up on the company.
“Despite the weak results, we continue to like the Valeant risk/reward profile, as the company is taking steps to address its cost base and divest underperforming assets,” said Andrew Swanson, an analyst with Citigroup, in a research note.
Marketing Pact?
Even Uhl concedes there are possibilities for growth down the road. If Valeant gets positive clinical results for taribavirin and retigabine, it could lead to a deal between Valeant and another company for either drug in international markets, he said.
“We estimate that both agents have annual sales potential of at least several hundred million dollars, possibly more, which would provide significant acceleration to (Valeant’s) earnings in 2009 and beyond,” Uhl said.
“(Retigabine) could be promising, but seems too far away to warrant risk of additional earnings disappointments,” Wachovia’s Tong wrote, but good clinical data for the drug could be a catalyst for the stock.
