Valeant's shares plunge after cutting sales, earnings forecast for 2016

Shares in Valeant Pharmaceuticals plummeted as much as 51 percent Tuesday after the company announced alongside its preliminary fourth-quarter financial results that sales this year are expected to be in the range of $11 billion to $11.2 billion, down from previous guidance of $12.5 billion to $12.7 billion. Meanwhile, annual earnings are estimated to be between $9.50 per share and $10.50 per share, cut from a prior prediction of $13.25 per share to $13.75 per share. Analysts anticipate revenue of $12.4 billion on earnings of $13.27 per share.

The company noted that the guidance "reflects reduced revenue assumptions for certain businesses, new managed care contracts and increased investment in key functions, such as financial reporting, public and government relations and compliance." Valeant added that the forecasts also include the impact of the weak first quarter of 2016, with revenue in the three-month period expected to be between $2.3 billion and $2.4 billion, down from previous guidance of $2.8 billion to $3.1 billion.

CEO Michael Pearson remarked "the challenges of the past few months are not yet behind us and our goal for 2016 is to better balance our priorities across all of our constituencies - physicians, patients, employees, payors, debt holders and shareholders." Pearson, who resumed his duties as chief executive last month after taking a medical leave, explained "we have assumed lower growth in our US dermatology, gastrointestinal, and woman's health portfolios, as well as certain geographies like Western Europe, while keeping our expenses largely unchanged." The executive said the drugmaker plans "to work hard to improve these metrics by delivering higher revenues and reducing our costs," adding that Valeant may divest smaller businesses this year to help pay down debt.

The revised forecast comes after the company disclosed that it would likely restate earnings for 2014 and 2015 due to a review by a board committee formed in response to allegations surrounding its relationship with the specialty pharmacy Philidor. The company stated that it will not release full-year earnings for last year prior to the completion of the committee investigation. Pearson said he hoped that Valeant could file its annual financial statement by April, but "I can’t commit to that." The company was due to file the report at the end of February and has until the end of April to avoid a possible default.

Valeant added that fourth-quarter sales reached $2.8 billion, up from $2.3 billion in the year-ago period, broadly in line with analyst estimates. Meanwhile, the company posted a loss of $336.4 million for the three-month period, with earnings of $2.50 per share. Analysts had estimated earnings of around $2.61 per share.

The company said its fourth-quarter performance was affected by weaker than expected revenue for its gastrointestinal business relative to its previous guidance as a result of reductions in the wholesale and retail channel in relation to its previously announced distribution agreement with Walgreens. The partnership was forged after the drugmaker ended its relationship with Philidor following accusations that the company used the specialty pharmacy to store inventory and record the transactions as sales in an effort to artificially inflate revenue.

Pearson acknowledged "we have to earn back the credibility," continuing "we have to deliver on results. We have to meet or exceed this guidance." The CEO added "it's a bit of a starting over point for me and this company."

Commenting on the news, Bill Ackman's Pershing Square Capital Management, which is Valeant's third largest shareholder, said the forecast and general uncertainty could cause investors to lose "total confidence" in Valeant. Pershing Square indicated "we are going to take a much more proactive role at the company to protect and maximise the value of our investment." Stephen Fraidin, vice chairman at Pershing Square, was recently appointed new independent director, increasing the size of Valeant's board to 14 members, 12 of whom are independent.

For related analysis, see ViewPoints: Valeant looks to press reset button – but misses, badly, as well as ViewPoints: One door opens, another closes for Valeant and ViewPoints: Valeant's credibility takes another hit.

To read more Top Story articles, click here.