Valeant Pharmaceuticals Intl Inc Is Looking Healthy
Things are looking better for Valeant Pharmaceuticals (NYSE: VRX ) after the company reported its third-quarter results on Nov. 7. The company revenue fell, which is understandable since it sold many assets in the quarter. Cash from operations rose as management proactively managed its working capital effectively. Valeant shareholders may now worry less as the turnaround takes hold.
VRX stock set up a string of good news ahead of quarterly results. For instance, it announced that it would sell back its Sprout holdings to former shareholders.
The key drug, ADDYI, cost the company $1 billion in August 2015 but never found its place in the market. Valeant was both distracted when a plummeting stock price and unable to give it the marketing spend the unit needed to succeed.
Sprout will pay a 6% royalty on ADDYI sales 18 months from now, and Valeant will provide a $25 million loan to help fund operating expenses. The deal is favorable to both parties. VRX was on the hook for $200 million a year in advertising spending and a 50/50 profit split.
Valeant simultaneously removed the litigation and cleaned up its balance sheet with the Sprout divestiture.
On Nov. 2, the FDA approved Valeant's Vyzulta for the treatment of intraocular pressure in patients with open-angle glaucoma or ocular hypertension. This drug has an even bigger market potential than SILIQ, a drug approved for treating psoriasis but having a black-box label.
Valeant has worldwide rights to Vyzulta, so this could lead to $1 billion in extra revenue.
VRX Stock Earnings Please Investors
Valeant did not disappoint when it reported third-quarter results. It posted the following key numbers:
- Revenues of $2.22 Billion, down 10.5% year-over-year
- Non-GAAP Net Income of $367 Million, down 28 percent
- Non-GAAP EBITDA of $951 million, down 18.2%
Cash flow from operations totaled $490 million, down from $1.222 billion in the third quarter. Adjusted EBITDA (non-GAAP) of $951 Million is down from $1.163 billion last year.
The company cut its debt by $6 billion since Q1/2016. It trimmed its full-year revenue guidance range to $8.65 billion-$8.8 billion, from $8.7 billion-$8.9 billion.
Valeant maintained its full-year adjusted EBITDA guidance of $3.60-$3.75 billion in spite of asset divestitures.
Revenue from Bausch + Lomb came in strong, helped by the Branded Rx (prescription) segment, international markets and better net pricing. The International segment grew 6% organically. Pipeline activity contributed to the 30% of the volume pickup in sales. This includes restocking and price increases in regions like Egypt. Global Vision stood out the most with its 10 percent volume increase. The Global consumer unit was up 6% organically, where higher sales volumes offset the flat pricing.
The Salix Pharmaceuticals unit also showed good results with 6% organic growth year-over-year excluding divestitures. Total revenue grew by 17% from last quarter to $452 million. Branded Rx sales benefited from stronger uptake for Xifaxan, which increased revenue growth by 5%. The company launched Relistor tablets, which resulted in prescription growing by a respectable 61%.
Together, the Salix and B+L units accounted for 77% of Valeant's revenue in the quarter. Since they both reported growth, investors may infer that profit margin will not deteriorate. Overall revenue declines stemming from asset sales will be offset by the strength of these two units.
Headwind for Valeant
Valeant's dermatology unit was a headwind, as the $148 million in revenue is a 34 percent decline from last year.
Fortunately, Siliq's launch addresses the unmet needs of patients suffering from psoriasis. Early market access is better than management expected. As it expands its market and it wins extra coverage, expect revenue growth to accelerate.
Valeant's turnaround is underway. Another quarter of improving performance from B+L and Salix, along with new products ahead, suggest more upside for VRX stock.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.
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