Valeant Shares Drop on Another Deep Cut to Guidance--8th Update
June 07 2016 - 6:34PM
Dow Jones News
By Jonathan D. Rockoff and Michael Rapoport
Valeant Pharmaceuticals International Inc. slashed its guidance
again Tuesday and said some key franchises were performing below
its expectations, the latest signs of weakness as the Canadian drug
company tries to dig out of months of turmoil and heavy debt.
Shares in the company fell as much as 22% Tuesday before
bouncing back. The stock closed down 15% at $24.64 on the New York
Stock Exchange, its lowest close since November 2010.
The drug company, once one of the industry's highest-flying
stocks, has cut its forecasts for financial performance twice since
it first gave them in December amid Wall Street questions about the
viability of the business and the company's ability to pay down
more than $30 billion in debt.
Valeant Chief Executive Joseph Papa, after a month at the helm
of the company, sought to ease the concerns during a conference
call with analysts by touting the company's progress in repaying
its loans and outlining a plan for stabilizing the business.
But Mr. Papa also described a series of serious obstacles that
must be overcome. He said the company's top-selling product,
irritable-bowel drug Xifaxan, was being prescribed more, but sales
aren't rising as much as the company hopes because of sales-force
turnover. First-quarter Xifaxan sales were $208 million, little
changed from $205 million in the fourth quarter.
The company's key franchise in skin drugs also faces challenges.
Skin-drug sales in the first quarter were $228.6 million, 43% lower
than in the period a year earlier. After ending a collaboration
with an aggressive mail-order pharmacy, Valeant joined with
Walgreens Boots Alliance Inc. to fill many of the
prescriptions.
Mr. Papa said the company reduced its guidance for the year
largely because of the issues with Xifaxan and the skin drugs as
well as the discounts it has promised for two cardiac-care drugs
whose prices Valeant had previously hiked. "We have to be
realistic," Mr. Papa said. He said Valeant is selling some of the
drugs through Walgreens at a loss.
Mr. Papa said the company had installed new leadership and hired
extra sales representatives for the Xifaxan business, is in
discussions with Walgreens to resolve the partnership's issues, and
is generally taking steps to restore morale and revive the
company's core franchises.
Valeant shares have lost 91% of their value since peaking last
August, as its strategy of acquiring drugs and hiking their prices
drew scrutiny along with its accounting practices.
Earlier this year, the company had a close brush with defaulting
on its debt due to a late annual-report filing. The company
remained in danger of default if it didn't file its delayed
first-quarter 10-Q quarterly report by July 31, but Valeant filed
the report with the SEC late Tuesday and said it "cured in all
respects" the potential of a default.
Also on Tuesday, Valeant cut its projection for adjusted
earnings before interest, taxes, depreciation and amortization --
one key measure of its ability to pay down debt -- to between $4.8
billion and $4.95 billion this year. That is well below Valeant's
original December projections of 2016 adjusted Ebitda between $6.9
billion and $7.1 billion, and down from its most recent guidance in
March of $5.6 billion to $5.8 billion.
Analysts say the level Valeant is forecasting gives it little
breathing room in meeting the financial targets required under the
terms of its loans. Moody's Investors Service affirmed Valeant's
credit rating Tuesday but said the company's cushion in meeting
those targets is "somewhat tight." The company says it expects to
meet its requirements throughout 2016.
Valeant now expects earnings of $6.60 to $7 a share for the
year, down sharply from its last guidance in March for $8.50 to
$9.50. Revenue is now expected between $9.9 billion and $10.1
billion, down from $11 billion to $11.2 billion.
Valeant said it remains committed to its previous plan to repay
$1.7 billion in debt this year. It has already repaid $730 million
and has another $273 million in required payments before year's
end.
For the first quarter, Valeant posted a loss of $373.7 million,
or $1.08 a share, compared with a profit of $97.7 million, or 29
cents a share, a year earlier. Adjusted earnings, which strip out a
variety of what Valeant says are noncash or nonrecurring items,
fell to $1.27 a share from $2.05.
Revenue rose 9.3% to $2.37 billion, up $202 million overall,
mostly because of acquisitions last year. Organic sales, meanwhile,
declined by $289 million in the first quarter of 2016.
The company had expected adjusted earnings of $1.18 to $1.43 a
share and revenue of $2.3 billion to $2.4 billion.
Anne Steele contributed to this article
Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com and
Michael Rapoport at Michael.Rapoport@wsj.com
(END) Dow Jones Newswires
June 07, 2016 18:19 ET (22:19 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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