This Bear Believes Valeant Pharmaceuticals Intl Inc (VRX) Played It Smart in Letting Sprout Pharma Go

David Maris: Valeant is getting rid of an opportunity that would never translate to money.


Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is cutting its losses after having purchased Sprout Pharmaceuticals in 2015, hooked then on acquiring what has been hailed as the female counterpart to Viagra: Addyi, a libido stimulator pill, and Sprout’s sole asset.

What cost VRX a hefty $1 billion in a cash deal has also gained the troubled biotech giant complaints in an Addyi launch that yielded disappointing sales. Did Valeant come up short in commercializing Addyi and have consumers been charged too many dollars amid insurance companies that mostly withhold coverage for patients seeking the pill?

Keep in mind, where Sprout forged a price point circling $400 a month for Addyi, Valeant may have gotten greedy in setting a price tag at $800 per month. Aggravated investors believe this could be why most insurers chose to refuse to cover treatment. Now, two years down the road, VRX CEO Joseph Papa is handing the Sprout subsidiary back to its original shareholders. Wall Street likes what it hears, relieved this money-guzzler has now been sold, as shares jumped almost 5% yesterday and are firing up close to 16% in pre-market trading today.

Wells Fargo analyst David Maris may have always thought the choice to takeover Sprout for such a massive cost initially was not the sharpest move on Valeant’s part, but even this bear acknowledges it is a shrewd play to let Addyi loose.

“We have long wondered about Valeant’s managerial decision to keep investing in Addyi even though it was not profitable and showing no positive signs of responding to additional marketing. The fact that VRX bought it for $1 billion (plus milestones) and is now selling it for a modest single digit royalty and providing a loan to the buyer to boot to us is a sign that Addy’s value is negligible. According to IMS, 2017 YTD Addyi sales are ~$6 million. We have also previously stated that we expect that Addyi, which had a carrying value of $1 billion, would face a write-down of nearly all of its value. Valeant did not disclose any potential write-down in today’s press release. Overall, while we did not agree with the company’s decision to acquire Sprout let alone for $1 billion, it is smart to stop investing in a brand that had no prospects of making money for Valeant,” contends Maris.

With his last 20 back-to-back negative ratings counting the giant’s luck out in the market, the analyst maintains an Underperform rating on VRX stock without listing a price target. (To watch Maris’ track record, click here)

Not everyone on the Street has given up hope yet on Valeant’s ability to make a comeback in the biotech-verse. Consider that TipRanks analytics demonstrate VRX as a Hold. Based on 13 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on Valeant stock, 7 maintain a Hold, while 3 issue a Sell on the stock. The 12-month average price target stands at $19.36, marking a nearly 61% upside from where the stock is currently trading.