Valeant Pharmaceuticals International Inc. surprised investors Tuesday and maintained its full-year guidance, setting a goal for the second half that will require the drugmaker to substantially raise its sales and profits.
As part of a planned turnaround, Valeant plans to sell assets that the company thinks will be worth about $8 billion, will renegotiate terms with lenders and will reorganize its business into three main segments as it tries to stabilize sales of several important but struggling products.
“We are setting the company on a new path with new strategic imperatives,” Chief Executive Officer Joe Papa said on a call with investors Tuesday. Part of that of which will involve more spending on drug development. “The pipeline is the key to the new Valeant.”
Second-quarter profit, excluding some items, of $1.40 a share was less than the $1.47 average of analysts’ estimates compiled by Bloomberg. Sales declined 11 percent to $2.42 billion, led by a drop in developed markets like the U.S. as the company faced pressure to cut prices and give larger rebates, Valeant said in a statement.
Shares, Bonds Gain
The shares rose 10 percent to $24.72 at 9:34 a.m. in New York. Its most actively traded bond, $3.25 billion of 6.125 percent notes that mature in 2025, rose 2.875 cents on the dollar to trade at 85.25 cents and yield 8.57, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Investors have been closely watching the company’s results to make sure it will be able to meet its obligations on its more than $30 billion in debt.
The company will be reorganized into three parts: Branded Rx, Bausch & Lomb/International, and U.S. Diversified products. Many of the company’s biggest drug categories saw declining sales, including in dermatology and prescription ophthalmology. Papa said the company is working to rebuild relationships with doctors and reduce employee turnover.
He also laid out a plan for future divestitures, proceeds from which could be used to pay down debt. The company is examining assets with revenue worth more than $2 billion, Papa said, that could be worth about $8 billion in a sale.
“This excludes our core assets,” Papa said. “We don’t have a plan to sell them — we are exploring our strategic options with some bankers we’ve asked to help us.”
The company will soon start work to renegotiate the terms it has with lenders on its debt. While it hasn’t broken its financial maintenance covenants, Papa said that the company’s cushion was not as large as he would like. “I believe this is one of the most important reasons our stock trades significantly below its intrinsic value,” he said.
Despite missing estimates, Valeant maintained the financial forecasts it gave in June. Adjusted Ebitda for the year will be $4.8 billion to $4.95 billion, the company said. That forecast is a key metric for investors who are watching as the company works to repay debt from acquisitions. Ebitda stands for earnings before interest, taxes, amortization and depreciation. Adjusted Ebitda in the second quarter was $1.09 billion.
Valeant also maintained its revenue and earnings per share forecasts. To meet those goals, it will need to increase sales and profits in the second half. Analysts are expecting improvement on both fronts, according to an average of estimates compiled by Bloomberg.
David Maris, an analyst with Wells Fargo & Co., said he had doubts. “It appears achievement of that guidance is increasingly unlikely,” said the analyst, who has an “underperform” rating on the stock. “Business trends are weak, debt is high, key management are leaving” and customers are getting smarter about pushing back on prices, he said.
The company announced initial steps on asset sales Tuesday. It said it will divest the U.S. equipment manufacturing arm of Synergetics, part of eye-care company Bausch & Lomb; and the drug Ruconest. Along with the sale of the European rights to psoriasis drug brodalumab announced earlier this year, Valeant said in the statement that the divestitures will bring in $181 million, with the potential for $329 million in additional payments dependent on sales milestones and approvals.
Valeant’s stock has lost more than 90 percent of its value in the last year after scrutiny of its prices led the drugmaker to cut ties with a pharmacy that allegedly used aggressive tactics to boost sales, and Congress and U.S. regulators began investigating the company’s practices. The Laval, Quebec-based drugmaker inked a new distribution deal with Walgreens Boots Alliance Inc. earlier last year, but said in June that it was losing money on some prescriptions sold through the pharmacy chain.
For a Bloomberg Intelligence primer on Valeant, click here.
Other highlights from the second quarter:
- Net loss attributable to Valeant of $302 million, or 88 cents a share, compared with a net loss of $53 million, or 15 cents, a year earlier.
- Dermatology sales fall 55 percent to $208.4 million.
- Consumer sales grow 6.1 percent to $173.1 million.
- Ophthalmology Rx sales fall 25 percent to $101.7 million.