Valeant the xifaxan killer could arrive in november – valeant pharmaceuticals international, inc. (nyse vrx) seeking alpha gas vs diesel engine


Cosmo Pharmaceuticals N.V. (SIX: COPN) announced that the U.S. Food and Drug Administration (FDA) has set a PDUFA date of November 16, 2018 for its decision on the New Drug Application (NDA) for Aemcolo (Rifamycin SV MMX ®) for the treatment of patients with travelers’ diarrhea (TD). In October 2017, the FDA granted Qualified Infectious Disease Product (QIDP) and Fast Track designations for Aemcolo. Aries Pharmaceuticals, Inc., Cosmo’s U.S. subsidiary based in San Diego, California, a specialty pharmaceutical company commercializing best-in-class gastroenterology products, will lead the commercial sales and marketing for Aemcolo, developed by Cosmo Pharmaceuticals, N.V., in the U.S.

"We are pleased with the FDA’s decision to Fast Track Aemcolo and potentially provide those who suffer from travelers’ diarrhea with a new treatment option," said Tom Joyce, CEO of Aries Pharmaceuticals Aemcolo has the potential to be an excellent fit within our portfolio of novel products that address high unmet needs for physicians and patients in diagnosing and treating gastrointestinal disorders."

Wells Fargo’s (NYSE: WFC) David Maris believes Rifamycin could compete with Valeant’s (NYSE: VRX) Xifaxan, which is indicated to treat travelers’ diarrhea and irritable bowel syndrome ("IBS"). Cosmo has several products in its pipeline that are already in the U.S. market. It licensed Lialda (mild-to-moderate ulcerative colitis) to Shire (NASDAQ: SHPG), and also licensed UCERIS (proximal and distal ulcerative colitis) to Valeant. Will Rifamycin Kill Valeant’s Golden Goose?

After being branded a "price gouger" in 2015, Valeant vowed to change its image. It put a moratorium on price hikes and vowed to pare debt. Since, there have been asset sales, debt pare-downs and a bevy of press releases highlighting the company’s progress. From the second half of 2015 to Q2 2018, Valeant pared debt by about $5 billion; however, the company had to sell some of its more attractive assets to do this. Valeant’s debt/run-rate EBITDA now exceeds 8x; management keeps pushing back principal payments so the debt never comes due.

The company’s Q1 2018 financial results proved asset sales and bombastic press releases have been much ado about nothing. Q1 revenue was down 5% Y/Y. EBITDA of $804 million was practically flat, but Valeant cut operating expenses to the bone. R&D was a paltry 5% of revenue. It makes one wonder if Valeant is a drug company or simply a pharma roll-up masquerading as one. The silver lining was the performance of Salix, whose revenue grew a gaudy 46% Y/Y, and Xifaxan (up 49%), which has been growing like a bad weed, implying it has been taking market share away from other drugs that treat travelers’ diarrhea or IBS.

Salix and Bausch & Lomb are considered the future of Valeant until new drugs from the R&D pipeline kick in. They represent a combined 77% of the company’s total revenue and 64% of total segment EBITDA (prior to corporate allocations). That’s why the Rifamycin threat could be so devastating. Xifaxan makes for over 60% of Salix’s total revenue.

If Rifamycin cut into Xifaxan’s sales, it could stymie Valeant’s total sales growth, EBITDA and/or credit metrics. To make matters worse, an additional 17% of Salix’s revenue is derived from Uceris and Apriso. Uceris is facing a patent challenge from Teva Pharmaceutical (NYSE: TEVA), and Apriso is facing a patent challenge from Mylan (NASDAQ: MYL). If Rifamycin were approved, then over 80% of Salix’s revenue could be at risk of getting clipped. It could be the blow that killed Valeant’s golden goose. The Play

I have sounded the alarm on Valeant for over a year now, but to no avail. VRX bulls have ignored me, and they have been proven right. The stock is up over 150% off its Q1 2017 lows. My guess is that the bulls will continue to ignore me. Valeant will likely announce Q3 earnings around November of this year; the Rifamycin PDUFA date could be a key topic of discussion on the Q3 earnings call. I expect VRX to trade lower leading up to the PDUFA date. If the drug is approved, the stock could retest its Q1 2017 lows. It could behoove VRX bulls to exit the stock prior to the PDUFA date. Conclusion