Valeant Pharmaceuticals Intl Inc (NYSE:VRX) may not have met its second-quarter earnings estimates nor its revenue estimates. But Valeant’s unaltered 2016 guidance that still exceeds analyst expectations has sent VRX stock soaring 7% Tuesday morning.
All told, the Canadian biopharma company earned $1.40 per share of VRX stock on $2.42 billion worth of revenue last quarter. Analysts were collectively expecting per-share earnings of $1.48 and sales of $2.46 billion. Valeant posted a profit of $2.56 per share in the same quarter a year earlier, when it drove $2.7 billion in revenue.
Looking ahead, VRX anticipates reporting 2016 income of between $6.60 to $7 per share on revenue between a range of $9.9 billion to $10.1 billion. On average, analysts were calling for a bottom line of $6.53 per share and $10.01 billion in sales. Adjusted EBITDA is projected to roll in between $4.8 billion and $4.95 billion.
Valeant CEO Joseph Papa said of the numbers:
“We continue to make progress towards stabilizing the organization. We are also announcing a new strategic direction for Valeant today, which, at its heart has a mission to improve patients’ lives, and will involve reorganizing our company and reporting segments. I am continuously encouraged by the commitment of our employees who work hard daily, rebuilding our relationships with prescribers, patients and payors, and regaining the trust of our debt holders and shareholders. Although it will take time to implement and execute our turnaround plan, I am confident that we will show progress in the coming quarters.”
Before Tuesday’s earnings announcement, analysts were expecting VRX to once again lower its 2016 profit guidance, after doing so twice already this year. Morgan Stanley analyst David Resinger noted in no uncertain terms: “We expect Valeant to lower guidance… we struggle to reach management’s full-year SG&A percent of sales target of 26%.” Resinger predicted the figure would be closer to 28%.
Resinger was right about his selling and administration expense outlook, though Valeant is going to make up for it on other lines of the income statement. EBITDA guidance of $4.5 billion or less would technically be a breach of the company’s covenant with lenders, allowing those debtholders to demand immediate cash payments.
VRX Stock – The Struggle Is Real
Valeant Pharmaceuticals had been through a very tough past 12 months. Since its Aug. 6, 2015, high of $263.81, VRX stock fell as much as 93%. And even at its current price near $23.80, shares still are down 90% from that peak.
A series of problems prompted the pullback, beginning with news on Aug. 20, 2015, that Valeant was acquiring Sprout (maker of the so-called female Viagra), taking on even more debt to get the deal done. It was the proverbial straw that broke the camel’s back — investors decided the company’s debt-rich growth plan wasn’t worth it.
A Sept. 21 tweet from Democrat Presidential candidate Hillary Clinton that vowed to end specialty pharmaceutical companies’ price gouging. Though it was in response to a different pharma company’s rampant price increase, her new mission put Valeant Pharmaceuticals dead in the government’s regulatory sights; the Senate preemptively took her ball and ran with it.
With VRX stock then vulnerable to any bearish commentary, it took little to do a great deal of damage … not that the company did much to help its credibility.
Indeed, the questions and pressure prompted CEO Michael Pearson to step down in March of this year, fanning the flames of disruption already scorching VRX stock. That disruption may have been part of the company’s failure to submit its required SEC filing in a timely manner earlier this year resulted in a technical default, and though the matter has since been resolved, the damage has been done.
Valeant: Looking Ahead
Joseph Papa, who took the helm in April, has restored some stability to the company, and today told shareholders to look for even more (so far non-descript) changes. Part of his long-term plans include shaving down the company’s $30 billion in debt by $1.5 billion this year, though doing so could require the sale of one or more of the company’s core assets like Bausch & Lomb or part of its gastroenterology business.
It’s already sold its Synergetics division, a contract manufacturer, and rumors have surfaced there may be a suitor for its constipation drug Relistor. The company noted that its recombinant C1-INH replacement therapy Ruconest is also to be sold. The sum total of the deal so far has only amounted to a few hundred million dollars.
Papa has also vowed to lower some of its drug prices, though its ability to fiscally do so is still in question.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.