Don't Read Into Valeant's New Salesforce

| About: Valeant Pharmaceuticals (VRX)


Valeant has hired a salesforce of primary care physicians - a natural call point for Xifaxan and Relistor.

This is a smart move to avoid business disruption.

The move does not mean the sale process is over or a failure. It may mean Takeda is out.

I continue to hold a small, speculative position.

Essentially every news item associated with Valeant (NYSE:VRX) has some sort of controversy or "drastic" implication. Valeant's latest news will certainly bring out the conspiracy theorists, and they will tell you that Valeant's decision to hire a primary care physician salesforce to sell Relistor Oral and Xifaxan. Some will say that the sale of Salix has been abandoned, and Valeant will not be able to delever, bankruptcy is imminent, etc.

However, this is simply normal course of business, and I do not believe investors should read much into this decision. As an M&A veteran, I have seen companies put their strategic plans on hold while running a sale process for a business unit. Although the company has not confirmed, I think it is safe to say that Valeant is running a formal process for many assets, and it's likely that Salix is among the assets in the process. Nevertheless, when companies postpone plans, they leave themselves open to suffering dire consequences of not implementing strategic direction. Business disruption begins, a salesforce might start to turn over, and innovation can grind to a halt.

Dow Jones is reporting that Valeant/Takeda talks over Salix have fallen apart. This actually provides some rationale to the press release, as Valeant may be using the salesforce announcement to improve its negotiating leverage.

If Valeant remains the owner or if the business is sold to any other strategic bidder, the business must remain robust. In fact, Valeant's guidance already contemplated the addition of a new primary care physician sales force. In my view, primary care is a natural call point for Relistor and Xifaxan. Primary care docs will have a large patient population on chronic pain medication, as well as patients with traveler's diarrhea and some with irritable bowel syndrome with diarrhea. I suspect Relistor oral may eventually begin to call on doctors in orthopedic practice, as I have noticed some promotional efforts in the space from competitors like AstraZeneca's (NYSE:AZN) Movantik. Ironically, I have seen competitors use "patient access" programs giving out vouchers to waive copays. Sound familiar? (Philidor)

The bottom line: Valeant's move to hire a salesforce does not mean the process to sell Salix is over, ending, or a failure; it means Valeant is simply executing existing commercial plans. In my view, any acquirer would run the same playbook because it makes so much sense strategically. I continue to hold on to a small position, though believe the company has a tremendously wide range of potential outcomes, which include a 2x-3x return or a 50% loss from current levels.

Disclosure: I am/we are long VRX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.