Wall Street’s love affair with Costa Mesa-based Valeant Pharmaceuticals International has cooled.
The drug maker’s shares, which surged a year ago on the company’s turnaround efforts, are off more than 30% from their January peak.
The company had a market value of $1.6 billion as of last week.
At issue: concerns about the potential of viramidine, Valeant’s hepatitis C drug that’s in third-phase clinical trials. Results are expected early next year.
The company has a lot riding on viramidine. It’s set to replace ribavirin, Valeant’s fading flagship that’s losing sales to rival drugs.
“The bottom line is people are concerned about viramidine’s success,” said Richard Watson, an analyst who follows the drug maker for William Blair & Co., a Chicago brokerage. “The bias on the Street has been negative towards viramidine,the bias has been towards failure.”
Viramidine’s results so far have been mixed. The upside: The drug showed a lower rate of anemia in hepatitis C patients.
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But Valeant said after second-phase trials that patient response to the drug wasn’t statistically different from those taking a combination treatment including ribavirin.
Results due early next year might not be as bad as some expect, according to Watson.
“People have latched onto whatever data is available, interpreted it as negative and extrapolated that to the phase three trials,” Watson said. “That is not necessarily an appropriate way of looking at it.”
Timothy Tyson, Valeant’s chief executive, said part of the stock falloff is due to speculation.
“There are a number of people who make money on driving the share price down,” he said. They “are taking advantage of a lack of any new data. What you’re seeing in the marketplace is that there’s been a lot of pressure from the hedge funds in driving the share price down. They’re in a wait-and-see mode.”
The “real bottom line,” Tyson said, are doctors and researchers involved in liver disease treatment.
They are “still excited and have regard that this study will prove what all of the previous studies have showed,that viramidine is equivalent to ribavirin in efficacy and superior in a reduction in incidence of anemia,” he said.
One analyst is skeptical. Earlier this year, Andrew McDonald, with ThinkEquity Partners LLC in San Francisco, said in a research note he didn’t see viramidine as a blockbuster for Valeant. McDonald said he is keener on Valeant’s other drugs.
Valeant’s pipeline includes retigabine, an epilepsy drug that Tyson believes eventually could be worth $500 million a year in sales, and pradefovir, a hepatitis B treatment.
The company counts yearly sales of about $800 million.
At the same time, William Blair’s Watson said he thinks investors may be overlooking Valeant’s core products,the company sells some 450 drugs.
Skeptics also might be forgetting about what Tyson and other executives have done to right the drug maker, he said.
Efforts include acquisitions, cutting jobs and facilities,primarily in Eastern Europe,and concentrating on three key markets: neurology, dermatology and infectious diseases.
“I still think that people are underestimating the earnings power of the underlying business in the 2006-2007 time frame,” Watson said. “I think people are underestimating what this management team is willing and capable to do in terms of additional business development product and licensing activities that could add some sex appeal to the story. None of that’s changed. The only thing that’s changed is the stock’s gotten cheaper.”
Some background:
Valeant has been working to retool itself after its days as ICN Pharmaceuticals Inc., the drug maker founded by former chief executive Milan Panic, who was ousted by disgruntled shareholders in 2002.
Panic, a native of Serbia, cast a long shadow over the company with pet projects in Russia and elsewhere in Eastern Europe.
At the center of Valeant’s turnaround is Tyson, who analysts say brings “real world pharmaceutical experience” to the midsize drug maker. Tyson hails from GlaxoSmithKline PLC.
Tyson said he thinks Valeant is undervalued on Wall Street.
“I do think the marketplace does not quite understand the value in the base business plus the value in the pipeline,” he said. “I will not personally go out and hype that we have all these great things, because it’s dangerous.”
Instead, Tyson said he’s being pragmatic.
“You can get people believing that you can drive the share price up and when the real information comes out, it can hurt you,” he said. “What I would rather do is tell people honestly what we’re doing and let them see for themselves.”
Valeant has been busy with products other than viramidine.
It signed a deal earlier this month with Par Pharmaceuticals Corp. of Spring Valley, N.Y., to promote Cesamet, which fights nausea and vomiting in patients undergoing chemotherapy.
Cesamet is awaiting Food and Drug Administration approval.
Valeant bought Cesamet last year from Eli Lilly & Co. and markets the drug in Canada.
Cesamet is a cannabinoid, or synthetic chemical that is based on tetrahydracannabinol, the active ingredient in marijuana.
The company also is awaiting word from the FDA regarding Zelapar, a drug for treating Parkinson’s disease.
Valeant got the rights to Zelapar last year when it spent $38 million to buy the American drug unit of London-based Amarin Corp.
If regulators clear Zelapar, Valeant is set to pay $8 million to Amarin, and then pay an extra $10 million if sales goals are met.
“We believe Zelapar and Cesamet are in the final stages of FDA approval and could launch in early 2006,” wrote Deborah Knobelman, research analyst with Minneapolis-based US Bancorp Piper Jaffray. “On Zelapar, (Valeant) has a FDA meeting scheduled in the next few weeks and should have greater clarity after that time.”
Cesamet could do $30 million to $50 million in revenue at its peak, Knobelman said.
