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 As of last week, Philidor Rx Services has stopped handling insurance
claims for drugs and it will cease operations by the end of January,
Valeant Chief Executive Officer Mike Pearson told investors and
analysts on a conference call on Tuesday.
The call, however, failed to allay concerns about the one-time stock
market darling. Valeant's volatile shares, which fell as much as 7.5
percent in morning trading, turned higher in the afternoon after one
of Valeant's main critics stated he had trimmed his short positions
in the stock.
"My short on Valeant has been significantly scaled down from where
it was earlier," said Andrew Left of Citron Research in an interview
on CNBC on Tuesday.
The influential short-seller had precipitated a steep slide in the
stock in October after his firm claimed Valeant was using an
undisclosed relationship with Philidor to inflate revenues. Valeant,
which is also being probed for aggressive drug pricing practices in
the United States, has since cut ties with Philidor and said it was
investigating its practices.
"We believe management's openness and transparency on the call was a
good first step in rebuilding investor confidence," said Canaccord
analyst Neil Maruoka in a note, adding that persistent uncertainty
around the impact of Philidor and U.S. drug pricing continues to
weigh on the stock.
SHORT-TERM HIT
Pearson said short-term disruption would be significant in the
company's dermatology business, and to a lesser extent in neurology,
affecting both average prices and sales volume for drugs in the
fourth quarter as Philidor winds down.
Valeant will give details when it updates financial guidance in
December, said Pearson, whose tone during the call ranged from
apologetic to defiant. The company has previously said that Philidor
accounted for about 7 percent of its total revenue and EBITDA in the
third quarter.
Len Yaffe, portfolio manager of StockDoc Partners healthcare fund,
said he expects that forecast to disappoint, and bets that the stock
will continue to fall.
"The first reduction may not be the last," said Yaffe. "I remain
short the stock, and I believe that the issues go well beyond
Philidor."
Valeant said it aims to put a new program in place within 90 days
for selling its dermatology products. Valeant's toenail fungus
treatment Jublia is one of the dermatology products most dependent
on Philidor.
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DEBT REPAYMENT
Valeant's priority for the near term will be paying down debt, said
Pearson, who stressed that he remains committed to the company and
is optimistic about its organic growth prospects in 2016.
Pearson took over at Valeant back in 2008 after working as a
pharmaceutical industry consultant at McKinsey & Co. He drove up
Valeant's revenue sevenfold via a quick succession of takeovers,
including those of Salix Pharmaceuticals and Bausch + Lomb.
The run of acquisitions, however, has left the company with a
long-term debt load of more than $30 billion.
Valeant said it has no significant debts maturing until 2018 and has
significant cash flow, most of which will go next year to reducing
debt. Valeant's deleveraging focus is positive, said credit rating
service Moody's.
Pearson has come under pressure as Valeant's stock price has fallen
from over $260 in early August to near $85 on Tuesday, on scrutiny
over its price mark-ups and allegations about Philidor.
Valeant has denied the allegations, but has not completely allayed
investor concerns as new reports surface of questionable billing
practices at Philidor.
"The past few weeks have been a painful learning experience for me
personally," said Pearson, who sounded tired and at times stumbled
over prepared remarks about the company's missteps.
"One of the consequences of rapid growth is you don't always take
the time to listen to what the broader world outside your company is
saying."
(Additional reporting by Ankur Banerjee in Bangalore and Bill
Berkrot in New York; Editing by Nick Zieminski)
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