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Valeant (VRX) Beats Q2 Earnings, Sales in Line, Trims View

Shares of Valeant Pharmaceuticals Inc. VRX surged 1.76% after the company announced that it is on target with its debt reduction plans.

Valeant’s stock lost 12% against the industry’s gain of 5.5%.

The company’s adjusted earnings per share of $1.05 beat the Zacks Consensus Estimate of 97 cents.

However, total revenue came in at $2.2 billion, roughly in line with the Zacks Consensus Estimate of $2.2 billion but declined 7.7% from the year-ago quarter. The year-over-year decline was due to lower volume and price in the U.S. Diversified Products segment, as a result of the loss of exclusivity for a number of products and the dermatology business.

Quarter in Detail

Revenues in the Bausch + Lomb / International segment were $1.2 billion, down 3% year over year due to impact of divestitures. Excluding the impact of the skincare divestiture and foreign exchange, the Bausch + Lomb/International segment organically grew by approximately 6%.

The Branded Rx segment revenues were $636 million, down 3% due to lower volumes in the dermatology business and the impact of divestitures and discontinuations in the Salix business which was partially offset by 13% revenue growth in the Salix business.

The U.S. Diversified Products segment revenues were $356, down 27% 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 $94 million in the reported quarter, down 24.2% from the year-ago quarter.

Selling, General and Administrative costs were $659 million compared with $671 million in the year-ago quarter.

During the quarter, the company completed sale of Dendreon Pharmaceuticals LLC and used net proceeds to pay down $811 million of senior secured term loan. Valeant will also redeem the remaining $500 million aggregate principal amount of outstanding 6.75% Senior Notes due 2018. The company has also decided to sell iNova Pharmaceuticals and Obagi Medical Products businesses for $930 million and $190 million in cash, respectively (to close in the second half of 2017).

On a positive note, the company received FDA filing acceptance for the NDA for Plenvu (NER1006), a novel, low volume polyethylene glycol-based bowel preparation for colonoscopies. Earlier, the FDA approved its new psoriasis treatment, Siliq. The company had an agreement with AstraZeneca plc AZN for Siliq but the agreement has been amended.

2017 Guidance Trimmed

The company expects total revenue in the range of $8.70–$8.90 billion, down from $8.90–$9.10 billion projected earlier. The updated guidance reflects the impact of the sale of the CeraVe, AcneFree and AMBI skincare brands and the sale of Dendreon Pharmaceuticals LLC. However, the guidance does not reflect the impact of the sales of the iNova Pharmaceuticals and Obagi Medical Products businesses, which are both expected to close in the second half of the year.

Our Take

Although second-quarter results were encouraging, the company trimmed its guidance due to recent divestitures. The company expects to meet its target of $5 billion debt reduction ahead of schedule. The Bausch + Lomb/International segment and Salix businesses together represented 73% of revenue in the quarter.

After a tumultuous period, Valeant started a rebuilding process with its new 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. The company still has $27.6 billion of debt as of Jun 30, 2017.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the health care sector are Aduro Biotech, Inc. ADRO and Gilead Sciences, Inc. GILD. Both stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Aduro Biotech’s loss per share estimates narrowed from $1.46 to $1.36 for 2017 over the last 30 days. The company delivered positive earnings surprises in two of the four trailing quarters with an average beat of 2.53%.

Gilead’s earnings per share estimates increased from $7.92 to $8.53 for 2017, over the last 30 days following strong results in the second quarter. The company delivered positive earnings surprises in three of the trailing four quarters, with an average beat of 8.18%.


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