VRX Bausch Health Cos

Signs of weakness come as drug firm tries to recover from months of turmoil

By Jonathan D. Rockoff and Michael Rapoport 

Valeant Pharmaceuticals International Inc. cut its outlook 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 nearly 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, but Mr. Papa said Valeant is selling some of the drugs through Walgreens at a loss.

He 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.

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 08, 2016 02:48 ET (06:48 GMT)

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