Allergan's Pain Might Be Valeant's Gain

| About: Valeant Pharmaceuticals (VRX)
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The FDA recently warned certain patients not to take Allergon's Viberzi.

Valeant's Salix unit offers a competing drug called Xifaxan.

If Xifaxan takes market share from Viberzi, this might make Salix more valuable.

The FDA recently warned that Allergan's (NYSE:AGN) Viberzi (eluxadoline), a drug used to treat irritable bowel syndrome with diarrhea (IBS-D), should not be used in patients who do not have a gallbladder:

Safety Announcement

[03-15-2017] The U.S. Food and Drug Administration (FDA) is warning that Viberzi (eluxadoline), a medicine used to treat irritable bowel syndrome with diarrhea (IBS-D), should not be used in patients who do not have a gallbladder. An FDA review found these patients have an increased risk of developing serious pancreatitis that could result in hospitalization or death. Pancreatitis may be caused by spasm of a certain digestive system muscle in the small intestine. As a result, we are working with the Viberzi manufacturer, Allergan, to address these safety concerns.

Patients should talk to your health care professional about how to control your symptoms of irritable bowel syndrome with diarrhea (IBS-D), particularly if you do not have a gallbladder. The gallbladder is an organ that stores bile, one of the body's digestive juices that helps in the digestion of fat. Stop taking Viberzi right away and get emergency medical care if you develop new or worsening stomach-area or abdomen pain, or pain in the upper right side of your stomach-area or abdomen that may move to your back or shoulder. This pain may occur with nausea and vomiting. These may be symptoms of pancreatitis, an inflammation of the pancreas, an organ important in digestion; or spasm of the sphincter of Oddi, a muscular valve in the small intestine that controls the flow of digestive juices to the gut.

As of February 2017, two deaths were reported by patients who used the drug that did not have a gallbladder. The deaths are considered to be associated with the use of Viberzi.

This might be good news for Valeant's (NYSE:VRX) Salix unit, that offers a competing drug called Xifaxan.

source: Valeant's Q4'16 filing

Xifaxan did $251 million in revenue in Q4'16 alone, and revenue was up 18% Y/Y. And as the chart above also shows, the drug has been increasing sales steadily for the past 3 years.

According to Allergan's Q4'16 report, Viberzi booked $93.3M for all of 2016. However, that was up compared to the $12.3M Viberzi did for all of 2015.

However in Q4 Viberzi did $38M in revenue, which means the drug was beginning to take of last quarter.

So even if Xifaxan is outselling Viberzi 10X over, Viberzi sales have been vibrant recently.

Will loss of Viberzi's market share benefit Valeant?

Overall, sales of Viberzi are not that huge that can make much of a difference to Valeant's results, even assuming Xifaxan takes 50% of Viberzi's market share.

However, if Valeant does take business from Allergan - as a result of the FDA warning - it might make a difference to VRX's division Salix. And the difference might be one of valuation.

So if VRX ever decides to sell Salix in the next several months, Salix might fetch a higher price.

Bottom line

Even assuming Viberzi sales fall by a lot - as a result of the FDA warning - it will not have any meaningful impact on Allergan's revenue.

Neither will it make much of a difference to VRX's revenue, because Xifaxan already makes 10X more in revenue than Viberzi.

However, if Xifaxan does increase sales vs. Viberzi - as a result of the FDA warning - that might increase the valuation of Salix, which might bring VRX a higher price, if it ever puts the division up for sale.

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.