) shares lost 1.63% immediately after reporting first quarter
results. Share price was almost static in the subsequent trading
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
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.
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
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
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.
In Apr 2014, Valeant and Pershing Square Capital Management, L.P
offered to acquire
). 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.
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.
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
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
Right now, stocks like
Astellas Pharma, Inc
) look attractive. Both carry a Zacks Rank 2 (Buy).
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