Valeant lifts annual guidance as third-quarter revenue jumps 36 percent

Valeant Pharmaceuticals announced Monday that third-quarter sales jumped 36 percent year-over-year to $2.8 billion, broadly meeting analyst estimates. Net income in the three-month period reached $49.5 million, down from $275.4 million in the year-ago quarter.

CEP Michael Pearson remarked "we reported yet another consecutive quarter of strong financial results that exceeded expectations." The company increased its full-year revenue forecast to the range of $11 billion to $11.2 billion, from an earlier estimate of $10.7 billion to $11.1 billion. Valeant also lifted its cash earnings forecast to between $11.67 and $11.87 per share, from a prior range of $11.50 to $11.80 per share.

For the quarter, Valeant noted that same store sales organic growth was 13 percent, while sales for the drugmaker's US dermatology business surged 53 percent to $465.5 million. The company indicated that Salix Pharmaceuticals, which Valeant acquired in April, contributed $461 million in quarterly sales, representing around 17 percent of overall quarterly revenue. Valeant added that sales of Xifaxan have been strong following its approval for the treatment of irritable bowel syndrome with diarrhoea by the FDA in May.

Valeant also disclosed that 15 percent of its revenue growth from branded pharmaceuticals in the US was generated by price increases, versus 19 percent from increased volume. Last week, Valeant acknowledged that it received subpoenas from the US Attorney’s Office in Massachusetts and the Manhattan US Attorney’s Office requesting information about its patient assistance programs, drug distribution and pricing decisions.

In September, members of the US House Committee on Oversight and Government Reform urged the committee chairman to subpoena Valeant concerning price increases for the cardiovascular drugs Isuprel and Nitropress. The company enacted price increases of 212 percent for Isuprel and 525 percent for Nitropress after purchasing the therapies in February. Valeant previously explained that it has not benefited from drug price increases as much as claimed by critics, adding that it has acted in a "fully compliant manner."

Pearson suggested Monday that Valeant is "seriously considering spinning-off or selling" its neurology portfolio, "which is dependent on price" and which "will continue to shrink as a percentage of the company." In the third quarter, the neurology business generated $564.5 million in sales, up 40 percent from a year earlier. "Given the current environment, I think that it probably doesn’t make sense for us to hold on to it," Pearson remarked, adding "hopefully we'll figure out a way to do it in a way that shareholders can continue to participate in an entity that’s maybe not a growth company, but a big dividend company."

Evercore ISI analyst Umer Raffat noted that the neurology business is the segment with the biggest price increases, adding that a sale or spinoff would be worth more than $1 billion. Stifel Nicolaus & Co. analyst Annabel Samimy said that divesting the unit could help with the political pressure on Valeant by taking the focus off of the use of price increases as a source of growth.

Pearson also indicated that the company may take advantage of the weak share price to buy back stock this year or next. In addition, Valeant plans to make more than the required debt repayments during the first half of next year. Mizuho Securities USA analyst Irina Koffler suggested that the debt plan may signal that Valeant will slow down the pace of acquisitions. "That has always been a traditional source of sizzle for the stock," Koffler commented, adding "I think they’re being appropriately cautious -- it’s just that I don’t know that investors were expecting that from this very pure-play, capitalist type of a company."

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