This Development Will Hurt Valeant Investor Sentiment Even More

The news of generic challenger for Xifaxan 550mg is brought down the shares of Valeant Pharmaceuticals Intl Inc (NYSE: VRX). Though Valeant has adequate patent protection for the drug, the recent news added fuel to the negative investor sentiment on the stock, which has dropped 63 percent in the last one year.

Xifaxan, which is used to treat travelers' diarrhea caused by E. coli, is a key product that Valeant got with its last year's acquisition of Salix Pharma, and the brand has quickly become its largest and arguably most important product.

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"We calculate that – excluding inventory effects – the drug is currently annualizing at $1.2 billion in net sales between the HE, TD and IBS-D indications and in our model we forecast that the drug will deliver $1.6 billion in FY16 sales – which equates to just over 12 percent of our total FY16 sales estimate of $12.6 billion," Jefferies analyst David Steinberg wrote in a note to clients.

Details Regarding The Generic

Late Friday, the FDA disclosed that a generic challenger has filed a PIV certification for Valeant's largest drug, Xifaxan 550mg. Valeant said it the filer was generic firm Actavis. Valeant said it has 22 Orange Book-listed patents covering Xifaxan 550 mg tablets that are scheduled to expire between August 2019 and October 2029.

"Valeant is highly confident in its intellectual property rights relating to Xifaxan® 550 mg Tablets and intends to vigorously enforce such rights in all applicable venues," the company said in a statement.

On the other hand, Actavis have to conduct human clinical trials to gain approval for generic Xifaxan.

"We've always viewed this as a very high hurdle for a generic challenger and believed it would deter most competitors as the competencies required are beyond those of many generic companies," Steinberg said.

Though Xifaxan 550mg is protected by 20+ Orange Book listed patents and the ANDA filer faces very high approval hurdles including required human clinical trials, the analyst said this new development arguably won't be helpful to the current poor state of investor sentiment.

Steinberg rates Valeant at Buy with a price target of $172.

At the time of this publication, Valeant was trading down 7.01 percent on the day at $75.

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