(Short) Andrew Left on Valeant + Walgreen partnershipHere he goes again...
Source: https://realmoney.thestreet.com/articles/07/18/2016/valeant-walgreens-partnership-destined-flop-andrew-left-says
This earnings season, Valeant Pharmaceuticals (VRX) could again be hit by a deal that's become an all-too-familiar thorn in the side of its shareholders.
Since announcing its partnership with Walgreens (WBA) last December, the struggling Canadian drugmaker has had to twice lower its 2016 guidance, largely on account of what Valeant CEO Joseph Papa calls "speed bumps" associated with the deal, especially as some drug prices are now substantially lower than costs.
On Papa's first-quarter earnings call in May -- in which he slashed earnings guidance and cited difficulties with the deal -- he said the arrangement often means that "every time a prescription goes out the door, we're taping dollar bills to that prescription," helping to quickly send shares into a 20% tailspin. (Walgreens stock is held in Jim Cramer's Action Alerts PLUS charitable trust.)
And now, with $31 billion in debt and shares down 91% since their highs last summer, the last thing Valeant shareholders want to see on next month's earnings rollout is another cut to 2016 earnings projections -- but that appears to be coming, Mizuho Securities managing director Irina Koffler said in a Monday investment note.
"Management indicated it still plans to offer 10% discounts on dermatology/ophthalmology drugs through Walgreens in the second half of 2016," Koffler said, adding Mizuho Securities expects "further slowing of organic growth this quarter." (Mizuho maintains an Underperform rating and $11 price target.)
Meanwhile, short-seller Andrew Left -- whose Citron Research was first to cast the spotlight on Valeant's drug-price hiking and accounting misconduct last fall -- said in a phone interview with Real Money Monday that the Walgreens partnership "is never going to work out," largely because of improved transparency in Walgreens' business model vs. Philidor and increased barriers for Valeant to hike prices on its products. (Philidor is a Hatboro, Pa.-based online specialty-pharmaceutical company, with whom Valeant has so far admitted to at least $58 million of improperly booked sales this year.)
"And doctors don't want to play the Valeant game anymore," Left added, who noted in Citron Research reports that Philidor had previously enabled Valeant to conceal the "sticker shock" of drug prices by enabling doctors to push drug costs onto insurers without ever having to send patients to bricks-and-mortar pharmacies like Walgreens, which now appears to be Valeant's principal choice of distribution.
Meanwhile, Koffler also noted that Valeant's operating costs are most likely to clock in above expectations this quarter and throughout the year, as current estimates are "unrealistic for a company planning to launch three new products," which are pending FDA approval this month, as Real Money reported.
Mizuho Securities also expects a moderate sales miss when Valeant reports earnings on Aug. 9, and predicts sales of $2.51 billion and earnings per share of $1.54 for the quarter vs. consensus estimates of $2.49 billion in revenue and $1.57 earnings per share.
"We want to get more constructive but think that 2016 guidance could get lowered again," Koffler added.