Valeant is top of mind in the Canadian market place in the specialty pharmaceutical landscape, said Brian Bloom when moderating the investing in commercial stage healthcare companies panel May 3 at the Bloom Burton & Co. Healthcare Investor Conference.
Valeant (NYSE:VRX) is at the top of list in the Canadian market place when it comes to the specialty pharmaceutical landscape said Brian Bloom when moderating the “Investing in Commercial Stage Healthcare Companies” panel on May 3 at the Bloom Burton & Co. Healthcare Investor Conference.
For investors unaware of the direction specialty pharma has taken–or for those who may be new to pharmaceutical investing–companies such as Turing Pharmaceuticals and Valeant, among others, have dramatically increased prices of life saving drugs. For example, one of the causes of the dramatic climb is US health insurance prices. Valeant used the method of M&As to acquire new products and grew through the acquired or merged company’s debts.
“Specialty pharma was like the toast of the town on Bay street for years and now it’s in the toilet,” Bloom said to the crowd at the conference.
Syprine, a life-saving drug for the rare Wilson disease, is another example of the price increase. A bottle of 100 pills of Syprine once costs $652, but Valeant notably raised the price over five years to $21,267.
Investors need to be aware of these price hikes and the international conversation about these companies. As Bloom mentioned, Valeant, spurring its growth through dramatic product price increases and M&A’s, initially gave investors an impressive return but ultimately failed in its business method.
In the days following the conference, Valeant made headlines on May 8 as the company reported the first organic growth for its products since 2015 and plans to change its name to Bausch Health. Those speaking on the panel agreed a business model such as Valeants’ wouldn’t last, or was “self-destructive,” Jason Wild from JW Asset Management said—not just for the company itself but made it hard for other companies to compete.
Wild added that a positive to the entire business system is that those executives are not with the respective companies anymore so companies growing organically are now able to compete fairly.
However, while the panel speakers agree the industry may be scared off by Martin Shkreli’s sentencing, from “jacking up prices,” said Bloom, there is still a ways to go before the increased product prices go down.
“There are still a lot of opportunities out there but some of the sellers do need to come off of where things were three years ago and be a little more realistic on pricing,” Wild said during the panel.
Even more worrying is generic companies are following suit of the high prices by creating generic equivalents with a mediocre price decrease bringing into question whether this business model is really ending.
“There’s definitely been more of a shift with that pendulum back towards the [pharmaceutical] development side,” Jeffrey Schwartz, partner at Bain Capital Life Sciences said in the panel. “We’ve seen a lot of innovative companies come out with improved options.”
As noted in Valeant’s announcement released May 8, the company highlighted that it is working on rebranding through its flagship optics unit Bausch & Lomb, which Valeant reported a 56 percent “durable growth” in its 2017 financial report.
“It’s a 165-year-old company, Bausch & Lomb, and, importantly, has a great legacy of innovation,” Valeant’s CEO Joseph Papa said on CNBC’s “Mad Money” on May 8.”They came out with some of the first eyeglasses. They came out with some of the first soft contact lenses. So we’re building on that innovation.”
As the panelists noted, Valeant among other companies business model of using M&A’s and company’s debt hasn’t been a beneficial long-term solution for investors.
When it comes to Valeant, after the initial downturn of the company’s share price, it began selling its subsidiaries to payback the debt of the companies it had been using. Overall this shows the business model again wasn’t successful over the long-term, and as Wild added the same executives are no longer at the respective companies to run the same business model.
Investors interested in the pharmaceutical space should continue to follow Trump’s next move with his plan to effectively lower drug prices across the nation—one of his 2016 presidential campaign proposal.
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Securities Disclosure: I, Gabrielle Lakusta, hold no direct investment interest in any company mentioned in this article.