An Investor's View of Valeant Pharmaceuticals for 2017

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Part 3
An Investor's View of Valeant Pharmaceuticals for 2017 PART 3 OF 6

VRX’s Branded Rx Segment Witnessed Drop in Revenues in 2016

Branded Rx segment

In the first nine months of 2016, Valeant Pharmaceuticals’s (VRX) Branded Rx segment reported revenues of ~%2.3 billion, which is a year-over-year (or YoY) decline of ~10.1%. Unit volumes and average selling prices for key drugs in the Branded Rx segment witnessed a decline in 2016.

VRX&#8217;s Branded Rx Segment Witnessed Drop in Revenues in 2016

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Volumes of drugs such as Jublia, Solodyn, and Ziana have decreased due to changes in Valeant Pharmaceuticals’s distribution model as well as competition from generic entrants. Valeant Pharmaceuticals faces competition from other dermatology players such as Anacor Pharmaceuticals (ANAC), Novartis (NVS), and Sanofi (SNY).

To learn more about the reorganization of Valeant Pharmaceuticals’s business segments, please read Valeant’s Reorganization Efforts Could Boost Investor Confidence.

If this negative revenue trend for the Branded Rx segment continues in future quarters, it could adversely affect VRX stock as well as those of the VanEck Vectors Pharmaceutical ETF (PPH). Valeant Pharmaceuticals makes up ~1.2% of PPH’s total portfolio holdings.

Revenue projections

The above table shows the revenue growth trend for all the business units in the Branded Rx segment since 3Q15. The Dermatology segment has witnessed a steep decline in revenues due to rebasing of the business, an effect that continued in 3Q16. To learn more about the performance of Valeant’s Branded Rx segment in 3Q16, please read Branded Rx Still a Pain for Valeant Pharmaceuticals.

In January 2016, Valeant Pharmaceuticals changed its distribution model. This model was originally based on specialty pharmacy to combination of distribution through Walgreens and increased access to its products through managed care providers. This change has affected the net selling price of products as Valeant Pharmaceuticals has to offer higher rebates to managed care organizations.

Dermatology revenues can also tend to be uneven due to accounting for accruals related to Walgreen’s fulfillment agreements. Further, a new coupon program offered by the company in 3Q16 increased the gross-to-net margin for Valeant Pharmaceuticals’s products.

In the next article, we’ll analyze the growth prospects for Valeant Pharmaceuticals’s Gastrointestinal business in greater detail.


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