- In Q3 2015, Philidor represented 6.8% of total Valeant revenue (p. 10)
- Philidor accounts for 5.9% of Valeant net revenue YTD (p. 11)
- At the time of the Purchase Option Agreement in December, 2014, Philidor YTD net sales were $111 million (p. 53)
Now 9.6% (3Q) isn’t all that much more than the 6.8% we were told, but it’s a heck of a lot more than 2.5% (1Q) and closer to the magic 10% of materiality. And remember, Philidor was only $111M for all of 2014. If anything, Philidor was rapidly becoming far more important to Valeant than they let on.
Using this figure, we discover that Philidor accounted for almost 40.3% of dermatology revenue in 3Q15 and 33.4% of 2015 YTD. Dermatology was a bright spot for Valeant this year, having generated $438.9M more in revenue through the first three quarters of 2015 than it did over the same period in 2014. As Philidor notched $454.9M YTD, versus ~$111M in 2014, it seems fair to conclude that the vast majority of this year’s dollar growth in US dermatology revenue was effectively Philidor.
Also, if it took the magic of Philidor to make drugs like Solodyn grow “organically,” how “durable” are those products really? Some have argued that growth in IMS-reported prescription numbers after Philidor’s disclosure in late October shows that Valeant didn't really need them anyway. (They come not to praise Philidor, but to bury it.) Why, then, did Philidor exist at all? How was it a “competitive advantage?” Why did a rapidly growing portion of Valeant’s revenue pass through its fingers? Valeant says that drugs sold by Philidor were less profitable. So who needs the hassle and the secrecy? The point is not that there’s no demand for Valeant’s drugs, only that Philidor makes such demand appear artificially robust, in our estimation. If nary a prescription will be lost without Philidor, surely Valeant wouldn’t have sought to expand it or, after its hasty burial, to resurrect it.
Overflowing with the holiday spirit, I’ll save the cheery folks at ValeantNow a few minutes.
Here are a few responses they might consider, and why I believe they are wrong.
1) Philidor wasn’t acquired until December 2014, so it wouldn’t be part of “same store sales” or “organic growth.”
This is a distinction without a difference. First, Valeant has stated that Philidor was an ordinary, arms-length customer before December 2014. Sales of drugs to Philidor—like any pharmacy—were thus included in Valeant’s 2014 revenue. Comparing 2015 to 2014 is perfectly fair, as the drugs sold to or through Philidor were counted in Valeant’s revenue in both years (and as far back as 2013, when it started). When Valeant consolidated Philidor is irrelevant.
Second, if we excluded Philidor’s revenue from same-store sales in 2015, then the stated numbers wouldn’t match. Total US sales in 3Q15 were $1,968.2M, while “same store sales” were $1,315.4M, a difference of $652.8M. The difference should roughly match 3Q sales of products acquired in 2015. To wit: GI and Urology/Oncology, acquired this year from Salix and Dendreon, generated $462.8M and $69.3M in 3Q15, while Isuprel and Nitropress added $50M and $35M, respectively. Those four together total $617.1M. If we are to add Philidor’s $189.5M to this $617.1M, then the reported same store sales figure is overstated. (Even ignoring Isuprel and Nitropress, the difference would be too large.) Point being: Valeant counted Philidor’s numbers in organic growth, and so do we.
(Note that the total U.S. Sales numbers in Table 3 and Table 6 of the 3Q press release don’t match, at $1,968.2M vs. $1,947.8M, respectively, and the difference is more than the footnote to Table 6 explains. We’ve used the figure from Table 3, as it’s the largest such difference and thus would be most contrary to our explanation.)
2) “Philidor didn’t only dispense Valeant products.” Ok, but as you have told us, the difference is about $1M a quarter (p. 8). We’d be happy to have a detailed breakdown of the price and volume of each drug Philidor dispensed (see #3 below), so please feel free to provide one.
3) “Philidor dispensed more than just branded products.” Sure. Please provide a list of the Valeant products Philidor dispensed, with a count of prescriptions filled and average total prices paid, grouped by drug and by co-pay amount.