Valeant stock rises on deal to cut prices for Walgreen customers

Valeant Pharmaceuticals has agreed to cut the prices of several of its drugs as part of a long-term distribution agreementswith the Walgreens retail chain.

It said it will drop wholesale prices for branded prescription-based skin and eye-care products by 10 per cent, saving the U.S. health system $600 million US.

The price reductions under the 20-year agreement with one of the largest U.S. drug chains will be introduced in six to nine months.

Walgreens will also distribute more than 30 of Valeant's branded products at comparable generic prices, starting in the second half of 2016. The average price decrease is expected to be more than 50 per cent, with reduced prices ranging between five and 95 per cent.

No price cuts in Canada

The price cuts don't apply in Canada where Valeant doesn't have similar distribution agreements with pharmacy retailers such as Shopper's Drug Mart, Jean Coutu or the Rexall Group.

Valeant's pricing practices have been under investigation bythe U.S. Congresssince the company dramatically increased prices for some specialty products this year.

The company has also come under fire as the result of a civil suit by a small U.S. pharmacy that shed new light on Valeant's distribution agreements and practices.

"We have listened to what the marketplace is saying and we've taken positive steps to respond," Valeant chairman and CEO Michael Pearson said in a news release on Tuesday, a day before he's scheduled to hold a conference call with industry analysts.

The new distribution agreement with Walgreens a chain with more than 8,000 retail outlets follows Valeant's decision to sever ties with mail-order pharmacy Philidor Rx Services. That relationship came to light as a result of a court battle between Valeant and another mail-order pharmacy.

Valeant says the Walgreens agreement will be used as a model for distribution deals with independent retail pharmacies.

"Our goal is to create a system that allows prescription medications to be dispensed and insurance claims adjudicated in an efficient manner while allowing physicians to focus their efforts on what matters most: patient care," Pearson added.

Transition to independent retailers

Patients with commercial insurance can benefit from lower out-of-pocket costs, while the program will also be available for patients without insurance coverage. However, reduced costs won't apply for those on government insurance.

Walgreens president Alex Gourlay said the new direct distribution model will increase efficiency and improve service for patients.

Douglas Miehm of RBC Capital Markets said the agreement that transitions Valeant to independent third-party distributors should be viewed positively by investors.

After losing 73 per cent over the past few months, Valeant's shares increased 16 per cent on the Toronto Stock Exchange.

Miehm said he had already expected the company to face significant revenue reductions as it realigns its distribution network. The most popular drug to be distributed through Walgreens will be its toe fungus treatment Jublia, which will see a 10 per cent price reduction, he added.