Here’s What to Expect With Valeant Pharmaceuticals Intl Inc Q3 Results

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Shareholders aren’t expecting any negative surprises when Valeant Pharmaceuticals Intl Inc (NYSE:VRX) reports third-quarter earnings on Nov. 7. The company continues to shed assets and renegotiate its debt while taking the right steps to improve the business at its two main divisions: Salix Pharmaceuticals and Bausch + Lomb (“B+L”).

Here's What to Expect With Valeant Pharmaceuticals Intl Inc Q3 Results
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Improvements at B+L have come in a series of new products, including a next-generation intraocular lens product announced earlier this month. The absolute revenue potential for the enVista MX60E lens will not move VRX stock but it is still a step in the right direction. The news followed another October release in Europe of a once-a-day disposable contact lens for astigmatism.

The eye care manufacturer had too few product refreshes that led to the unit’s underperformance in the last few years. B+L spent years failing to innovate its products. This product is well-positioned to help the company gain back market share in the contact lens market for patients needing a specialized lens.

The contact lens market is massive, so Valeant’s focus in this market is one of the key ingredients to its turnaround. According to Grand View Research, the contact lens market will be worth $17.7 billion by 2025, with a CAGR of 6.2%. B+L must sustain a growth rate of at least this level to avoid losing market share.

It’s too early to tell if this Valeant unit will find success in growing at a faster pace than the market. The company just needs to spend smartly on research and development, launch more quality products that its customers demand, and advertise enough to build consumer awareness.

Oversubscribed Debt Refinancing

This month, Valeant sold $1 billion in 5.5% due in 2025 in an offering that ended up oversubscribed. The favorable interest rates will lighten the cost of maintaining current debt as Valeant said it will buy up to $1 billion of 5.375% Senior Notes due in 2020.

This is a win-win situation for the company and for bondholders, who are hungry for high rates. If investors didn’t believe that Valeant’s business wasn’t stabilizing, the market would have demanded an even higher rate to compensate for the risk. Instead, the company is not only restructuring its businesses to operate more effectively but it is paring its overall debt.

Valeant will end the upcoming quarter with around $26 billion in debt, or $24 billion of debt net of cash. The company cut more than $800 million of debt with the Dendreon sale. It raised an additional $923 million from the iNova sale, while the Obagi deal netted $190 million.

 

 

The asset sales not only reduce debt levels but also jettison businesses that are distractions for management. Though Valeant paid up much of its upcoming debt in exchange for longer-dated maturities, higher free cash flow from its core businesses will sustain the broader turnaround.

Meanwhile, VRX Stock Underperforms

The VRX stock drop following last quarter’s surprisingly good earnings results is due to heightened risks for generic drug makers. Federal and state lawmakers want to reform Medicare, including the overhaul of the pricing model for drugs. Generic drugs are most vulnerable. New rules that allow for more competition for these drugs will hurt prices and profitability. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) fell from $20 a share down to around $15 a share after the FDA approved the Mylan NV (NASDAQ:MYL )generic Copaxone multiple sclerosis treatment. This will cost Teva 25 cents a share in the fourth quarter.

VRX stock’s nearly 16% decline this month appears over-done. Even a small earnings beat or stronger outlook from management when the company reports earnings will send the stock sharply higher.

Chances are good that both B+L and Salix will perform better than markets expect. Valeant invested in the right areas of marketing and staff hiring. That happened while the company cut costs where it could.

Chris Lau does not own any of the aforementioned stocks. Valeant is covered regularly in his DIY Value Investing newsletter.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get actionable insight to achieve strong investment returns.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/heres-what-to-expect-with-valeant-pharmaceuticals-intl-inc-q3-results/.

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