Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Aggressive drug-price hikes. Updated financial forecasts that scare analysts. A government investigation, M&A-driven debt loads, pharmacy benefit manager fights, and double-digit share price declines.

Nope. Not talking about Valeant.

Mallinckrodt, Horizon, and Endo all share more than one of the above qualities with the embattled Valeant. All three specialty pharmaceutical firms suffered share-price declines this week in sympathy with their Canadian drunk uncle, which had a disaster of a week

They've all protested that comparison to Valeant is unfair. And it's true none have difficulties nearly as extreme as Valeant's. But they do share enough to make uncomfortable comparisons relevant. 

Sympathy With the Devil
Other specialty pharma stocks have plunged alongside Valeant after it reduced forecasts. Percent change in share price.
Source: Bloomberg

Horizon marks a few boxes on the baby Valeant checklist. It got into a public spat with pharmacy benefit manager Express Scripts over its relationship with specialty pharmacy Linden Care. It disclosed in February it had received a subpoena in November from a U.S. Attorney's office related to its marketing and patient access programs, which seek to get around insurer efforts to avoid pricier drugs in favor of generics. It charges around $1,500 a month for what's essentially a one-pill combination of the pain reliever Advil and the stomach-acid treatment Pepcid. 

Endo picked a uniquely bad time to share some bad news and disclose a lower than expected first-quarter revenue view on Thursday, given that Valeant's shares had just been annihilated for doing similar things. Its outlook shift was not comparable in degree or severity to Valeant's $1.5 billion cut to its revenue forecast, but the update came just weeks after the company's fourth-quarter earnings call. That's not a great look for an M&A-happy company that happens to be run by Valeant's ex-COO. 

Valeant foe Andrew Left of Citron Research has also targeted Mallinckrodt. The company sells a half-century-old drug called Acthar Gel for as much as $35,000 a vial and has tussled with insurers over its use. It acquired a maker of what is effectively injectable Tylenol in 2014 and doubled the treatment's price.      

End Over Endo

Mallinckrodt and Endo are also both levered, with net debt-to-Ebitda ratios of 4.2 times and 7.5 times, respectively, according to Bloomberg Intelligence. Valeant comes in at 5.6 times, and the specialty pharma average is 3.48 times.

Of course, Valeant combines all of these issues and takes them to extremes in pretty much every case. Horizon has one government investigation? Valeant will raise it three more. Have an allegedly unusual and high-volume relationship with a specialty pharmacy? Valeant allegedly effectively owned one named Philidor and didn't disclose it. Deal-happy, with $29.7 billion in combined acquisitions for the three firms since 2010? A pittance, child's play; Valeant did $34 billion of deals all on its own over the same period.  

But the three firms have followed Valeant's basic playbook to some extent, whether in dependence on pricey acquired drugs, M&A, or stingy R&D spending. Mallinckrodt spent 6.9 percent of its net sales on R&D last quarter, Endo was at 4 percent, Horizon around 5.5 percent, and Valeant rounds out the bottom at 3.4 percent. More conventional pharmaceutical firms consistently spend 10 percent or more of their sales on research. 

Research Lite
Valeant and other companies compared to it don't do a whole lot of research as a percentage of net sales.
Source: Bloomberg

The specialty model is tougher to sell as a growth story in the wake of Valeant's meltdown. And it's tougher to execute given the stock market's current dislike of specialty pharma in general; a potential FDA rule change may make it harder to profit on Valeant-style price increases anyway. 

To end their sympathy dives, these companies need to prove they can grow without price hikes and serial acquisitions, resolve their payer difficulties and stay out of the news. An FDA approval or two wouldn't hurt. Protests alone certainly won't do it. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net