Valeant ($VRX) is working to gain investor confidence as it tries to find its footing in the wake of allegations about its business practices and drug-pricing scrutiny from politicians. But it'll take time for sales and earnings to recover from the turmoil.
The company cut its financial guidance for Q4 and for 2015 on Wednesday--no surprise, considering the warning issued when Valeant jettisoned its controversial specialty pharmacy partner Philidor. But it also took its 2016 predictions down a notch: The company now expects EBITDA to ring in between $6.9 billion and $7.1 billion, compared with the $7.5 billion it previously forecast.
The reasons? First off, it will spend $225 million to ramp up access for its dermatology products. That business was hardest-hit by the Philidor split, and it's the focus of a new pricing and distribution pact with Walgreens ($WBA) announced Tuesday.
|Valeant CEO J. Michael Pearson|
The Canadian drugmaker is also nixing "virtually all of our planned price increases" for 2016, CEO J. Michael Pearson said Wednesday on a call with investors, which will sink earnings by $125 million. Valeant hopes the move will help stem the tide of pushback from politicians, who took aim at Valeant's price-hike strategy after learning of hefty mark-ups on a pair of heart drugs. Just Wednesday, Rep. Elijah Cummings (D-MD) sent a letter to Pearson--his third since August--demanding documents and interviews about the moves, and others regarding Valeant's compliance with federal securities laws.
Employee retention bonuses--put in place to encourage Valeant's workers to stick it out through the tumult--and legal fees will each take a $75 million bite out of earnings next year. Thanks to that retention program, "we've lost no one," Pearson said. "We lost two reps in dermatology. That's it. … We've ignored the external factors. We should be measured on that."
Pearson insists that investors have a lot to look forward to. He touted the Walgreens agreement--which will cut prices of its branded skincare and eyecare by 10%, and match prices of generic competitors for 30 brands--as a "huge" opportunity for volume growth.
"This is going to be much better than Philidor," he said.
For now, Pearson will have to hope shareholders feel similarly. Valeant's stock, battered by the events of the past few months, sank in early trading Wednesday before rallying to nearly 9% above its opening price at press time.
- read Valeant's release
- see its investor presentation (PDF)
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