March 14, 2017
By Mark Terry, BioSpace.com Breaking News Staff
Surprisingly, given the turmoil caused by the Trump Administration, the stock market has been doing fine the last 12 months. The S&P 500 has grown by 17 percent, more than double the historical average. However, not every company is enjoying the boom. Sean Williams, writing for The Motley Fool, examines two biopharma companies that could tank and disappear by 2019.
1. Valeant Pharmaceuticals International
Anyone following Laval, Quebec-based Valeant Pharmaceuticals International for the last couple years won’t be surprised by this prediction. The scandals have been so numerous it’s hard to know where to begin. Dubbed a “serial acquirer,” the company bought over 120 other companies over a nine-year period. It also got nailed for drug pricing issues, part of the hot-button issue during the latest U.S. presidential campaign. Its former chief executive, J. Michael Pearson, and former chief financial officer, Howard Schiller, may be facing a criminal investigation by U.S. prosecutors over possible accounting fraud related to the company’s connections to now closed specialty pharmacy company, Philidor Rx Services.
The company’s new chief executive officer, Joseph Papa, is working to get out from under the company’s $31 billion in debt by selling off some of its non-core assets, but there’s been a tendency for them to go for what Williams describes as “fire sale” prices, or not sell at all.
“Valeant,” Williams writes, “which had been primarily growing its business through price hikes on mature drugs and through debt-financed mergers and acquisitions, ran into a brick wall when it was caught red-handed passing along exorbitant price hikes of 525% and 212% on two cardiovascular drugs.”
As the core business weaknesses became more evident and its earnings were slowing, the concerns over the debt level grew. Williams writes, “Ultimately, the company’s debt could be its undoing. Valeant’s secured lenders keep a close eye on its EBITDA-to-interest coverage ratio as a sign of whether the company will be able to repay its loans. In recent quarters, Valeant’s EBITDA-to-interest coverage ratio has fallen to an expectation of just 2-to-1, if not lower, for 2017. That’s exceptionally low.”
And with a $2.8 billion loss, investor Bill Ackman is done with Valeant Pharmaceuticals. Ackman said he has sold all of his shares of Valeant stock and will not stand for re-election to the company board of directors. Ackman joined Valeant’s board of directors in 2016 as part of an attempt to place the company under new guidance with a new chief executive officer, Joe Papa, who replaced former CEO Michael Pearson.
And there’s nothing dazzling in the pipeline. Things don’t look good.
Valeant is currently trading for $12.11. That’s a very long way from its high of $257.53 on July 31, 2016.
Although many of Valeant’s problems are self-inflicted, MannKind Corporation is much less so. Back in 2014, MannKind received approval for an inhaled form of insulin, Afrezza. Since most people with diabetes are on injections or insulin pumps, Afrezza seemed like a slam dunk. MannKind inked a big sales and marketing deal with Paris-based Sanofi and it looked like the company was ready to rock.
But by January 2016, the product had failed to gain traction in the market and Sanofi bailed on the partnership. The killer for Afrezza was insurers. Typically insurance companies classify drugs in four tiers, 1 through 4. Tier 1 drugs are generally low-priced generic drugs. Tier 2 is typically a preferred brand name prescription drug. Tiers 3 and 4 are generally higher-cost prescription medications, and drugs that are considered effective, but not necessarily the best choice for the majority of patients.
Most insurers placed Afrezza as Tier 3, even though MannKind and Sanofi worked to get it placed in Tier 2. For consumers, that meant that they usually paid a higher co-pay to get the drug, as well as there being possible restrictions.
MannKind tried to use its external marketing representatives to push Afrezza, but recently gave up and started training in-house sales staff. It also got Afrezza on Aetna and Express Scripts’ formularies.
Williams writes, “But there’s a major concern: cash. MannKind’s decision to use in-house marketing representatives will likely mean an acceleration of its cash usage, since the company continues to lose money. It ended the third quarter with $35.5 million in cash, $30.1 million in credit line access from The Mann Group, and $50 million in at-the-market common stock issuances it could tap. Additionally, it had received a $30.6 million payment from Sanofi and netted $16.7 million from the sale of real estate.”
But the reality is, the company may not have enough money to stay in business.
MannKind is currently trading for $2.01.
