Valeant slashes guidance as disastrous year takes its toll


Even after implementing a three-point turnaround plan that involves paying down debt, fixing its struggling dermatology business and other major moves, Valeant can’t seem to garner any winning votes from investors. The company slashed its full-year forecasts during its Election Day earnings release, prompting its shares to slide down more than 22% in premarket trading to an opening price of $14.

Valeant reported that its revenues during the quarter fell 11% year-over-year to $2.48 billion, hampered largely by declining sales of neurology and dermatology products, as well as the faltering of stomach-drug maker Salix Pharmaceuticals, which it bought last year for $11 billion but is now reportedly trying to sell. The company’s adjusted net income fell from $844.7 million in the same period last year to $543 million, or $1.55 per share.

Analysts had predicted Valeant would report adjusted earnings of $1.73 per share on sales of $2.49 billion, according to Thomson Reuters. And Valeant now says its adjusted earnings for the year will be between $5.30 and $5.50, not the $6.60 to $7 it estimated earlier in the year. It also nudged down its sales forecast to between $9.55 billion and $9.65 billion, from $9.9 billion to $10.1 billion.

While sales in Valeant’s Bausch + Lomb unit did grow 4% year-over-year to $1.16 billion during the quarter, its branded-drugs unit struggled, as revenues fell from $1.1 billion to $847 million. The company blamed a rise in managed-care rebates on its dermatology and Salix products, as well as lower price appreciation and a drop in inventory levels.

The dire report sent some analysts on a search for bright spots, and Umer Raffat of Evercore did find one: Sales of toenail-fungus treatment Jublia rose from $31 million last quarter to $44 million, which Raffat pegged in a note as “early signs of improvement in derm.” But Wells Fargo analysts were quite a bit more pessimistic, calling the disappointing quarter a clear sign that the company is “on a weak trajectory.” Wells Fargo has an “underperform” rating on Valeant shares.

Last quarter, Valeant CEO Joseph Papa hinted that part of his strategy would be to sell off non-core assets to simplify the company’s business and pay down debt, and he may be about to take one big step in that direction. Last week, The Wall Street Journal reported that Valeant is in advanced talks with Takeda to sell Salix for about $10 billion, which would include $8.5 billion in cash and future royalty payments. The cash could go a long way towards easing concerns about the $30 billion in debt Valeant racked up during an M&A spree.

Still, it’s clear Wall Street is worried about Valeant’s future. During a conference call with analysts after the earnings report, Wells Fargo analyst David Maris asked the company’s new CFO, Paul Herendeen, if Valeant has enough liquidity to survive over the next five years without selling assets or restructuring debt. Herendeen, who joined Valeant around Labor Day from animal-health giant Zoetis, said he sees a clear pathway for the company to be able to maintain liquidity, service its debt and refinance it.

But it won’t be simple, Herendeen conceded. “I won’t kid anybody,” he said. “We have a challenge here.”