Valeant Beats on Earnings in Q1 - Analyst Blog

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Valeant Pharmaceuticals ' ( VRX ) shares lost 1.63% immediately after reporting first quarter results. Share price was almost static in the subsequent trading session.

Valeant reported first quarter 2014 cash earnings per share of $1.76 (excluding special items and non-cash expenses), up from the year-ago earnings of $1.30 per share.

Excluding stock-based compensation expense, earnings per share came in at $1.74, beating the Zacks Consensus Estimate of $1.72 per share.


Revenues for the quarter soared 77% year over year to $1.9 billion due to the recent acquisition of Bausch + Lomb. However, revenues missed the Zacks Consensus Estimate of $2.0 billion.

Quarterly Highlights

Product sales at Valeant amounted to $1.85 billion during the first quarter, up 78.2% year over year.

Total sales from developed markets jumped 82% year over year to $1.4 billion buoyed by the acquisition of Bausch + Lomb. Same-store organic product sales were 1%. The growth in these markets was also driven by continued improvement in the dermatology franchise, aesthetics and oral health portfolios, consumer, neurology and other.

U.S. Dermatology promoted products sales jumped 17% driven by increased sales of Elidel, Carac and Solodyn, as well as the launch of Luzu. During the quarter, Valeant launched 11 new products in the U.S.

Sales from the emerging markets grew 61.0% year over year driven by the acquisition of Bausch + Lomb.

However, the first quarter sales were negatively impacted by the genericization of the Zovirax franchise, Retin-A Micro and Vanos franchises in the U.S., and Wellbutrin XL in Canada.

Research & development (R&D) expenses jumped 157.6% to $61.3 million. Selling, general & development (R&D) expenses almost doubled to $482.9 million due to the launch of numerous products and efforts to significantly increase the size of aesthetics and dental sales forces.

We note that Valeant acquired Bausch + Lomb in Aug 2013 to strengthen its ophthalmology business, which was a miniscule portion of Valeant's overall portfolio. Valeant expects synergies of more than $900 million from the acquisition.

Allergan Acquisition

In Apr 2014, Valeant and Pershing Square Capital Management, L.P offered to acquire Alllergan, Inc. ( AGN ). Valeant proposed that each Allergan share would be exchanged for $48.30 in cash and 0.83 shares of Valeant common stock. Shares of Valeant were up 7.5% on the proposal. The proposal allows shareholders to elect a mix of cash and shares.

The offer will allow Allergan shareholders to own approximately 43% of the combined company.

We note that Pershing Square Capital Management is the largest shareholder at Allergan with a 9.7% stake. Pershing Square Capital Management is in favor of the acquisition.

Guidance Update

Valeant reiterated its guidance provided concurrently with the Allergan acquisition proposal. Valeant expects revenues to come between $8.3 billion and $8.7 billion in 2014. Earnings per share, on a cash basis, are projected between $8.55 and $8.80.

The first half of 2014 will be burdened by heavy launch costs related to new products and expansion of sales force in Valeant's aesthetics and oral health businesses. Valeant expects the impact of recent generic entrants to ease and organic growth to accelerate in the second half of 2014.

Our Take

Valeant currently carries a Zacks Rank #3 (Hold). First quarter results did not surprise us.

Valeant, a Canada-based specialty pharmaceutical company, has been quite aggressive on the acquisition front in the last two years contributing to its solid growth. Dermatology is the key focal area for Valeant.

Allergan, a global multi-specialty pharmaceutical company, develops and commercializes innovative products for eye care, neurological, medical aesthetics, medical dermatology, breast aesthetics, urological and other specialty markets.

In Apr 2013, Valeant acquired Obagi Medical Products. In Dec 2012, Valeant acquired all of the outstanding common stock of Medicis Pharmaceutical Corporation. Apart from dermatology, Valeant is also keen on developing its ophthalmology portfolio. In Aug 2013, Valeant acquired Bausch + Lomb Holdings Inc. for $8.7 billion in cash.

However, Allergan has made it clear that it is reluctant to accept Valeant's offer. We expect investor focus to remain on further updates from Valeant and Allergan on the acquisition proposal.

Right now, stocks like Shire ( SHPG ) and Astellas Pharma, Inc . ( ALPMY ) look attractive. Both carry a Zacks Rank 2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: AGN , ALPMY , SHPG , VRX

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