Valeant is working on a three-point plan to stabilize, turn around and transform its business. But how much progress it made on that front in Q2 has been difficult for industry watchers to quantify.
As CEO Joseph Papa laid out for investors on Tuesday’s quarterly conference call, the company has already begun paying down debt, attracting new talent, re-recruiting employees, fixing its troubled dermatology business, and growing its GI franchise--and it’s planned some changes for Q3 that it thinks will help, too.
Those include splitting its business up into three segments: “durable growth,” which will encompass Valeant’s Bausch & Lomb eyecare business as well as most of its international markets, generating about half of the revenue the company has predicted for 2016; “growth,” which will house its struggling Salix and dermatology businesses, as well as cancer vaccine maker Dendreon; and “cash-generating,” which comprises its neurology and other drugs unit, skincare buys Solta and Obagi, and generics.
On Tuesday, though, the company rolled out quarterly results that missed expectations, with revenue of $2.4 billion falling short of the $2.47 billion consensus mark and adjusted EPS coming in at $1.40, compared with a $1.47 prediction from Wall Street.
And while Valeant kept its 2016 EBITDA guidance intact--it still expects EBITDA to come in between $4.8 billion and $4.95 billion for the year--the underwhelming Q2 numbers will make accomplishing that feat more difficult. As Evercore ISI analyst Umer Raffat pointed out in a research note, EBITDA needs to go from $2.1 billion in H1 to more than $2.7 billion in H2, which could prove a tricky task.
“The business trends are weak, debt is high, key management are leaving, the SEC and other investigations continue, and VRX is a price driven model in a payer market that has gotten smarter, in our view,” Wells Fargo analyst David Maris wrote in a note to clients.
Valeant, though, is counting on improvement in its dermatology business--revenues for which fell by 55% year-over-year--to get it there. As Papa noted, the Canadian drugmaker has tweaked its pact with Walgreens such that new prescriptions are no longer losing Valeant money. But that fix didn’t stop skincare revenues from sinking between Q1 and Q2, Raffat pointed out.
As Valeant looks to find its footing, though, one thing seems nearly certain: divestments are on the way. Papa has touted them as a way to raise funds for paying down debt and to simplify Valeant’s business, and in the company’s earnings presentation, it predicted that noncore asset sales could drum up about $8 billion. Valeant has already “engaged multiple banks and advisors in this process to explore our options,” it said, and according to Papa, the company has already received its fair share of unsolicited bids.
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