Walgreens stock price jumped from $84.89 to $86.01 by1.32% and Valeant stock price increased from $108.76 to $113.12 by 4.01%.
Buried in the details of a new 20-year distribution agreement between Valeant Pharmaceuticals International Inc. and Walgreens Boots Alliance Inc. is a $150 million financial hit to Valeant that underscores the unusual nature of the deal.
The amount reflects the one-time revenue impact on Valeant of the drug-distribution pact, according to a Valeant presentation last week to analysts and investors.
The $150 million revenue impact includes the value of the drugs that are shifting to consignment status and Valeant isn't paying a premium to take back title of the drugs.
Valeant mentioned the financial impact from the Walgreens transaction in slides accompanying the Dec. 16 business review, and said Valeant would credit Walgreens for the inventory it had on hand. Representatives for the company weren't immediately available to comment.
Analysts generally lauded Valeant for finding a new partner as well-known and respected as Walgreens. Yet some expressed concern that the preferential treatment could antagonize other companies that make, pay for and distribute prescription drugs.
The $150 million revenue hit is one of a number of unusual aspects of the Walgreens deal. Another is Walgreens will take Valeant drugs on consignment, and may earn even more from the fees Valeant pays it for filling prescriptions than it would through the standard model of getting reimbursed for the drugs at a higher price than Walgreens paid to them, said Adam Fein of Philadelphia-based Pembroke Consulting, who tracks drug distribution.
A Walgreens spokesman says that the chain had in years past gotten some of the drugs it sold directly from manufacturers, skipping wholesalers, although currently it doesn't. The spokesman said Walgreens was interested in the arrangement because it can encourage interactions between pharmacist and patient, thereby improving patient care and adherence to prescriptions.
Valeant has emphasized that its relationship with Walgreens removes the wholesaler middlemen and uses the cost savings to discount its signature eye and skin drugs by 10% and more than 30 other medicines facing generic competition by an average of 50%.