Wednesday, November 30, 2016

Valeant, Salix, sales force and asset sales

Valeant put out a press release today about expansion of sales force for their Salix business:
Valeant Announces The Initiation Of A Primary Care Sales Force For Xifaxan® And Relistor®
LAVAL, Quebec, Nov. 29, 2016 /PRNewswire/ -- Valeant Pharmaceuticals International, Inc. (NYSE: VRX and TSX: VRX) ("Valeant") today announced that it has initiated a significant sales force expansion to focus on potential primary care physician (PCP) prescribers of Xifaxan for irritable bowel syndrome with diarrhea (IBS-D) and Relistor for opioid induced constipation (OIC.)  With the launch of the expanded sales force effort over the coming weeks, the company expects to reach a significant majority of likely Xifaxan and Oral Relistor primary care prescribers.  The costs of this program were considered in previously announced guidance for the full year 2016.
"Our goal in building a primary care sales force is to maximize opportunities for Xifaxan and Relistor to help our products reach full potential. Xifaxan and Relistor are integral to our gastrointestinal franchise which remains a core asset for future growth potential in the hands of Valeant," said Joseph C. Papa, chairman and chief executive officer. "With approximately 70% of IBS-D patients initially presenting with symptoms to a primary care physician, our dedicated PCP sales force will be better able to reach the patients in need of IBS-D treatment and in doing so will further advance our mission to improve people's lives with our healthcare products."
There are several implications.

First the stories that say Valeant is selling Salix are almost certainly false. These stories are responsible for the stock rising 30 percent recently.

Secondly it puts the acid to the idea that Mike Pearson (Valeant's former CEO) was good at cutting costs. As this story makes clear Salix had a Primary Care Sales Force when Valeant acquired it. However they were debating whether to keep it. (Obviously they gutted it and are now being forced to reinstate it.)

This happened all over Valeant. Lots of businesses are melting ice cubes where the sales force has been neutered or where drugs have had prices pushed up to levels that create umbrellas under which competitors will flourish.

Finally they can't sell Salix for anything like what they paid for it (and that was the single most obvious sale candidate). Other sale candidates will have bigger separation problems.

Debt outstanding is roughly cumulative acquisition cost. This won't wind down nicely.

Indeed bankruptcy looms. Late next year probably.

Long shareholders, by now you ought to be feeling sick. But let me offer a solution: opiates. Just drug yourself out so you don't feel the pain.

And if you get opiate-induced constipation Salix/Valeant can help you out. That is what Relistor is for.

And now a Primary Care Salesman will visit your doctor and explain the benefits. Mr Papa (Valeant's CEO) is making sure that happens.

Sure Valeant will charge your insurance company plenty for the drug. But it is for a good cause.



Potato Chip Sanders said...

How is your long going in Protalix Biotherapeutics (PLX) Potato Chip Sanders?

It looks like you would be down 83% from where you wanted to buy it ($3.35). Although Protalix's drug offering isn't going to numb your pain, VRX can.

admin said...

The business model of Salix looks questionable to me. Xifaxan is branded version of Rifaximin that can cost between $950 and $1713 depending on the dosage. Generic versions in US start from $63 and are even cheaper in Canada.

GlobalTrader said...

"Indeed bankruptcy looms. Late next year probably."
says the man with a tiny little short

Anonymous said...

Curious why would file for BK next year when looks like nearest maturity is 2018?

Anonymous said...

John - care to share how/under what circumstance bk would come to pass in 2018? would salix+BL both fall out of bed?

Anonymous said...

I'll make you or anyone any charitable bet they want that VRX does not file next year.

chrispycrunch said...

VRX won't face bankruptcy but it does need to sell assets. It must also sell assets at a reasonable price. For these reasons, VRX remains a 'hold' and is not a top idea in my newsletter marketplace subscription.

hugs'nkisses said...

The irony is that the reaction of the stock was +30% on the day they announced they were trying to sell their only grower at <10x EBITDA. Today's news at least gives them a final hail mary.

In my mind, all that this Salix wolf-crying achieved was indicating that even their best assets are going to be fetching single-digit multiples (and Takeda's backing away now seems like they smell blood in the water).

sjgmoney said...

A breach of debt covenants would speed up that maturity, I'm sure that's what the thinking is.

GlobalTrader said...

"Curious why would file for BK next year when looks like nearest maturity is 2018?"

because John Hempton says so

Anonymous said...

How's HLF doing? And RBS? (Just failed stress test). And RYCEY? (Not good). Or how about SUNEQ, another of your long picks? (BK, right?) Funny how you never seem to blog about those stocks anymore ;)

Unknown said...

Bankrucpty or not. Pearson is going to laugh all the way to the bank with his $83.000 monthly consultancy contract - at least for a period ;)

admin said...

A breach of debt covenants may mean there is no possibility to refinance that debt with more debt, no possibility to dilute and also limits on asset sales because some assets are being secured by the debt provider.

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