QLT (QLTI) Files Suit Against Valeant Pharmaceuticals (VRX)

QLT Inc. (NASDAQ: QLTI) | Valeant Pharmaceuticals Intl Inc (NYSE: VRX)

QLT seems like it’s headed for a strong start to the trading session today after announcing that it will be taking Valeant Pharmaceuticals to court. Today, we’ll talk about why QLT has made the decision to file suit against Valeant and what we can expect to see from both stocks moving forward.

QLTI Files Suit Against VRX For Breach Of Contract

In 2012, QLTI and VRX entered into an Asset Purchase Agreement surrounding the Qcellus laser that is under development. Under that purchase agreement, there were several milestone payments that Valeant was expected to pay QLT. Under the agreement, VRX was to pay QLTI a milestone payment of $5 million following the receipt of laser registrations by December 31st, 2013. In September of 2013, supplemental premarket approval was achieved for the Qcellus laser in the United States. QLT states that this triggered a $5 million milestone payment. However, Valeant refused to pay the milestone. As a result, QLT filed a law suit against Valeant for damages in the amount of $5 million. QLTI also claims that VRX failed to use commercially responsible efforts to promptly obtain laser registrations for the Qcellus laser in the United States.

Will Valleant Even Be Affected?

In my opinion, the answer is no. While they may be forced to pay the $5 million milestone, the company is so massive that this won’t likely affect its bottom line, especially considering the recent agreement VRX signed with Walgreens. Nonetheless, this is incredibly important for QLTI.

What We Can Expect To See From Both Companies Moving Forward

I have very different opinions of what we can expect with regard to each company moving forward. Here’s how I see it:

  • QLTI – First and foremost, as mentioned above, this lawsuit means quite a bit to QLTI. Over the past year, the company has been struggling as financial problems have hit. So $5 million could be a make it or break it type payment for the company. Nonetheless, based on what we’ve seen over the past year, I believe that QLTI needs to make management changes before we can expect to see long-term bullish activity on the stock. So, the outlook – regardless of whether or not they win the lawsuit – is a bit grim.
  • VRX – VRX, on the other hand, looks like a strong option at the moment. Earlier in the year, the company struggled as Citron called them the Enron of biopharma and discrepancies with regard to Philador created an uproar. Nonetheless, it seems clear that VRX has fallen to a crucial support level and is recovering. In fact, the company recently signed an agreement with Walgreens that gives Walgreens a 10% discount on the wholesale cost of both over-the-counter and prescription treatments created by Valeant. As a result, we can expect to see strong sales in the company’s drugs leading to solid gains in the market to come.

What Do You Think?

What do you think about the lawsuit between QLTI and VRX? Also, where do you think these companies are headed moving forward? Let us know your opinion in the comments below!

[Image Courtesy of Wikipedia]

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