Valeant (VRX) Wellbutrin XL Pricing Strategy is Unsustainable - Wells Fargo's Maris
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Wells Fargo analyst David Maris said Valeant Pharmaceuticals (NYSE: VRX) Wellbutrin XL distribution is unclear and more importantly, its pricing strategy is unsustainable.
Maris commented, "How does Wellbutrin XL still show growth when it went generic in 2006 and currently has ten generic competitors, especially when prescription trends have shown a dramatic and steady decline (total monthly prescriptions have fallen from approximately 30,000 per month two years ago to approximately 16,000 in July 2016). Traditionally, brands facing this type of generic competition see erosion in the 90% range. A January 2016 Bloomberg article discussed this subject and raised the possibility that privately held Direct Success, Valeant’s specialty distributor partner for Wellbutrin XL, might hold the key. We decided to look into this further given the importance of Wellbutrin XL to Valeant’s sales base (it is the #2 product). As a result of our review, we conclude that the Wellbutrin XL distribution is unclear and more importantly, its pricing strategy is unsustainable. In response to our questions Valeant indicated that Direct Success represents less than 5% of Wellbutrin XL sales, but Valeant could not confirm this holds true for Direct Success and all of Direct Success affiliated pharmacies. We are lowering our Wellbutrin XL sales forecasts, as detailed within. Valeant has recently informed us that it is in the process of ending its relationship with Direct Success."
Underperform and $17-$22 valuation range.
Shares of Valeant Pharmaceuticals closed at $22.18 yesterday.
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