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Valeant (VRX) Earnings and Revenues Beat in Q3, Stock Up

Shares of Valeant Pharmaceuticals Inc. VRX rallied 23.6% after the company reported better-than-expected third-quarter results on Nov 7.

Notably, Valeant’s stock has increased 26.7% in the last six months compared with the industry’s loss of 2.2%.

The company’s adjusted earnings per share of $1.04 beat the Zacks Consensus Estimate of 90 cents but was down from $1.46 per share in the year-ago quarter.

However, total revenues of $2.21 billion topped the Zacks Consensus Estimate of $2.17 billion but declined 10.5% from the year-ago quarter. The decrease was primarily attributed to declining volumes in the Diversified Products in the United States and Branded Rx segments due to the loss of exclusivity for a basket of products.

The fall in revenues can also be blamed upon the discontinuations of divestitures and unfavorable foreign exchange. The decline was partially offset by increased sales in the Bausch + Lomb/International segment and Salix business.

Quarter in Detail

Revenues in the Bausch + Lomb / International segment were $1.2 billion, up 1% year over year. Excluding the impact of discontinuation of divestitures, primarily the skin care divestiture, and foreign exchange, the Bausch + Lomb/International segment organically grew by approximately 6% year over year driven by increased volumes in the global Consumer, International and Global Vision Care businesses.

The Branded Rx segment revenues were $633 million, down 17% due to a decrease in sales which primarily reflects lower volumes in the Ortho Dermatologics business and the loss of sales due to the divestiture of Dendreon Pharmaceuticals LLC. This was partially offset by increased sales in Salix. 

The U.S. Diversified Products segment revenues were $332 million, down 29.4% year over year due to decreases in volume and price attributed to the previously reported loss of exclusivity for a basket of products.

Research and development expenses were $81 million in the reported quarter, down 19.8% from the year-ago quarter.

Selling, General and Administrative costs were $623 million compared with $661 million in the year-ago quarter.

During the quarter, the company received clearance for the Thermage FLX System to non-invasively smooth skin on the face, eyes and body. Earlier, the company received the FDA filing acceptance for the NDA for Plenvu (NER1006), a novel, low volume polyethylene glycol-based bowel preparation for colonoscopies. The FDA also approved its new psoriasis treatment, Siliq and the drug has been launched. The company had an agreement with AstraZeneca plc AZN for Siliq but the agreement has been amended.

2017 Guidance

The company expects total revenues in the range of $8.65-$8.80 billion, down from $8.70-$8.90 billion projected earlier. The updated guidance reflects the impact of the sales of the CeraVe, AcneFree and AMBI skin care brands, the sale of Dendreon Pharmaceuticals LLC, the sale of the iNova Pharmaceuticals business; and the sale of the Obagi Medical Products business, which is expected to close before the end of this year.

Our Take

Although third-quarter results were encouraging, the company trimmed its guidance due to recent divestitures. After a tumultuous period, Valeant started a rebuilding process with its CEO, Joseph C. Papa. Even though it is still early to comment on the rebuilding process, but the company’s efforts to sell non-core assets and pay down huge levels of debt is commendable and should bode well in the upcoming quarters. As of Nov 7, 2017, the company has reduced total debt by approximately $6 billion since the end of first-quarter 2016.

The company is also divesting Sprout Pharmaceuticals and ADDYI businesses.

The Bausch + Lomb/International segment and Salix businesses are doing well. In particular, uptake of Xifaxan and the launch of Relistor tablets drove prescription growth by 61%. New drug approvals are also expected to boost growth and offset the weakness in the dermatology segment. The FDA recently approved Vyzulta for open-angle glaucoma. Meanwhile, pricing in the dermatology business is beginning to stabilize.

Zacks Rank & Key Picks

Valeant currently carries a Zacks Rank #3 (Hold).

Some better-ranked health care stocks in the same space are Ligand Pharmaceuticals Inc. LGND and Adaptimmune Therapeutics plc ADAP. Both companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ligand’s earnings per share estimates have moved up from $3.68 to $3.70 for 2018 over the last 30 days. The company delivered positive earnings surprises in two of the trailing four quarters, with an average beat of 6.19%.

Adaptimmune’s loss per share estimates have narrowed from 96 cents to 72 cents for 2017 and from 90 cents to 75 cents for 2018 over the last 60 days. The company reported positive earnings surprises in three of the trailing four quarters, with an average beat of 24.79%.

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