Valeant cuts annual guidance again as drugmaker swings to first-quarter loss

Shares in Valeant Pharmaceuticals declined as much as 22 percent Tuesday after the company said during its first-quarter results presentation that it expects 2016 revenue to be in the range of $9.9 billion to $10.1 billion, down from an already-lowered earlier estimate of $11 billion to $11.2 billion. The company, which blamed "significant disruption" over the last year for the downward revision, now predicts annual earnings per share will be between $6.60 and $7, cut from prior guidance of $8.50 to $9.50. Meanwhile, analysts anticipate sales of $10.9 billion on earnings ranging from $8.43 per share to $8.47 per share. 

Joseph Papa, who took over as CEO last month, remarked that "this has been a difficult period for Valeant and its stakeholders, and while there are some challenges to work through in certain business operations in 2016, such as our US dermatology unit, the majority of our businesses are performing according to expectations." 

The drugmaker missed first-quarter profit forecasts, posting a loss of $373.7 million, compared with a profit of $97.7 million in the year-ago period, while quarterly sales were in line with consensus, rising 9 percent to $2.4 billion. The dermatology business, which has faced resistance from health insurers and pharmacy benefit managers over increased prices, reported a 43-percent drop in revenue at $228.6 million. Prescription ophthalmology products generated $90.7 million in sales during the quarter, down 30 percent from the corresponding 2015 period. 

Commenting on the results, Piper Jaffray analyst David Amsellem said "the reality is that if you look across a number of segments, there are all kinds of question marks." However, Papa referred to the challenges facing Valeant as "speed bumps," particularly in regards to the company's dermatology products distribution deal with Walgreens Boots Alliance. "In some cases the average selling price [on some drugs] has been negative," Papa acknowledged, adding that he is working to fix the issue. 

Valeant has delayed submitting its first-quarter report because of earnings restatements, leading some bondholders to issue default notices to the company. However, the first-quarter report comes ahead of an extended July 31 deadline required for the drugmaker to avoid defaulting on its credit agreement. Papa indicated that "with our filing expected this week, we will be current in our financial reporting." He said Valeant has "made progress toward stabilising the organisation over the past few months, and we expect to file our financial results in a timely manner going forward." 

The CEO indicated that it would take up to six months to stabilise the company, including hiring staff, improving relationships with physicians and payers, divesting assets and repaying debt. While Papa did not specify which assets would be put up for sale, he confirmed these would not include the core businesses of dermatology, consumer products, Bausch + Lomb eyecare and Salix gastrointestinal drugs. Meanwhile, the drugmaker has reimbursed $730 million of its roughly $30 billion in debt so far this year, and has said it intends to repay more than $1.5 billion in 2016. 

Papa also did not clarify recent rumours that there had been takeover offers for Valeant. The Wall Street Journal reported last month that the company had been approached regarding a possible joint takeover by Takeda and private-equity firm TPG, but that Valeant had rejected the offer. Also last month, Valeant said it would expand hospital discounts in the US for its cardiovascular drugs Nitropress (nitroprusside) and Isuprel (isoproterenol) amid increased scrutiny over its drug-pricing practices.

For related analysis, see ViewPoints: Can Papa deliver what Pearson preaches? 

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