Going From Philidor To Walgreens Gives Valeant Credibility, But There Are Still Questions

Valeant Pharmaceuticals Intl Inc (NYSE: VRX) stock surged to 12.50 percent to $109.80 in Tuesday's afternoon trading session, following its new 20-year deal announcement to cut prices for Walgreens Boots Alliance Inc (NASDAQ: WBA).

The drug deal comes six weeks after the company had cut ties with specialty online pharmacy Philidor.

On Tuesday, Morgan Stanley commented that Valeant going from Philidor to Walgreens gives the pharma company credibility, but also said in its analyst report that a great deal of questions remain.

Related Link: Report: Valeant Considers Selling Its Contact Lens Division Amid FTC Investigation

More than 30 branded products at "generic prices" will be distributed to Walgreens. The company will slash prices by 10 percent for branded dermatology and ophthalmology products distributed by Walgreens retail pharmacies.

With direct reference to Valeant's plans to distribute the generic priced branded products, analysts at Morgan Stanley further raised their concerns in their latest report, questioning the amount of Valeant's discounts that would be retained by Walgreens versus being passed on to payers.

The Deal

Valeant's deal will begin in the first quarter and extend the model to independent retail pharmacies.

"We have listened to what the marketplace is saying and we've taken positive steps to respond," Valeant CEO J. Michael Pearson said in a statement. In the United States, more than 8,000 Walgreens pharmacies will cover Valeant's medicines, including acne products Solodyn, Retin-A Micro, eye drop Alrex and toenail fungus drug Jublia. It will also include Valeant's over-the-counter products.

Expert Responses

High growth stocks are back and names that have been shorted are back, TheStreet's Jim Cramer said.

Umer Raffat, an analyst with Evercore ISI views getting Walgreens to sign on is a "big credibility boost."

Morgan Stanley views the announcement to work with the leading United States pharmacy as a positive step for Valeant, although its value proposition and economics to the healthcare system remain unclear.

Image Credit: "Walgreens, Cairo" by Michael Rivera - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons.