Valeant Keeps Raising Drug Prices, Stock Still Carries Too Much Risk: Wells Fargo

On September 16, Valeant Pharmaceuticals Intl Inc VRX raised the list price by 9.9 percent each of three of its products, according to Medi-Space CDI data.

Wells Fargo’s David Maris maintained an Underperform rating on the company.

The Price Hikes

Maris mentioned that these three products represented on a small portion of Valeant Pharma’s sales, with only $1.2 million in combined sales for Q2:16, as compared to total reported sales of $2.4 billion for the quarter.

“While insignificant, we believe this may be a sign of things to come and a sign that EPS guidance for 2H16 is tight enough that raising price on marginal products is what Valeant feels is necessary,” the analyst stated.

Maris also commented that the 9.9 percent increased appeared odd, compared to an even 10 percent, although the analyst believes that it could be an attempt by the company to remain under the radar of managed care plan and states that are on the lookout for double-digit price hikes.

Guidance At Risk

“We suspect that 2H16 EPS guidance is challenging for Valeant to make, as evidenced by Valeant’s inability at our recent conference to strongly confirm its guidance,” the analyst went on to say.

The analyst noted that the H2:16 guidance implied about 155 percent incremental adjusted EPS growth from the H1 levels, and partly depends on lower SG&A and R&D spending.

“As we have previously stated, we do not believe this is a sustainable strategy, as cutting expenses does not increase prescriptions, and with weakness in prescriptions, Valeant is left with its previous strategy of price increases,” Maris explained.

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