The firm has faced major challenges during a tumultuous year and the stock is diving
Jared S. Hopkins
After an already tumultuous year at Valeant Pharmaceuticals International Inc., the new management cut the annual profit forecast to well below estimates and suggested there may be more bad news on the way for the embattled drugmaker.
“There could still be surprises yet to be discovered,” new Chief Financial Officer Paul S. Herendeen told analysts in his first conference call to present quarterly earnings. “I’m not trying to alarm anyone or walk away from our revised guidance. I’m just letting you know that as time passes our confidence in our forecast and our guidance will improve.”
The stock dropped 27 percent to $14 at 9:30 a.m.
Valeant once gain took investors off guard with disappointing results that pointed to declining sales at some of its key businesses. Herendeen’s comments highlighted the major challenges Chief Executive Officer Joe Papa will have regaining confidence from shareholders that had already seen a 90 percent slump in the stock over 15 months, as Valeant became the focus of outrage over skyrocketing drug prices and government investigations.
The net loss amounted to $1.22 billion last quarter after Valeant took a $1.05 billion goodwill impairment charge to write down the value of some U.S. businesses including Salix, which makes top-selling gastrointestinal treatments and has been considered one of the drugmaker’s crown jewels. Sales at Salix, which is among assets that Valeant is considering selling, dropped 5.4 percent, while dermatology sales slumped 50 percent, dragged down by lower prices and higher rebates.
“It appears Valeant’s core business continue to deteriorate, as we had feared,” David Maris, an analyst at Wells Fargo Securities who rates the stock underperform, wrote in a note to clients. “Overall, a disappointing quarter that shows Valeant on a weak trajectory.”
Papa, who joined in May after former executives testified before Congress and federal authorities started investigating the drugmaker, is now looking into divesting businesses to reduce some of Valeant’s $31 billion in debt.
The drugmaker lowered its earnings guidance to $5.30 to $5.50 a share, excluding some items, from $6.60 to $7 previously. Analysts anticipated $6.49, on average.
The company repaid $450 million of its debt load in the third quarter, bringing total payments this year to $1.6 billion and closer to its $1.7 billion goal for 2016.
Valeant renegotiated its agreement with lenders earlier this year to relax terms so it is easier to use credit to pay off loans and sell assets. In a conference call with analysts Tuesday, the company said it expects to remain in compliance with its debt covenants.
Papa replaced Michael Pearson, a former McKinsey & Co. consultant who jacked up prices and scaled back on research and development. Pearson and former Chief Financial Officer Howard Schiller are the focus of a criminal probe against the company as authorities build a fraud case related to hidden ties to a specialty pharmacy that Valeant secretly controlled, people familiar with the matter have said.
Valeant is also facing investigations from Congress and the U.S. Securities and Exchange Commission over its accounting and drug pricing. In August, a major shareholder, T. Rowe Price Group Inc., sued the company, accusing its former top executives of using a secret network of pharmacies and deceptive pricing strategies to artificially inflate revenue and profit, among other things.
Papa, who joined from over-the-counter and generics drugmaker Perrigo Co., has brought in a new chief financial officer, general counsel and corporate controller. He formed a committee responsible for drug pricing, and the company has promised to follow through with a program to give hospitals discounts on some of the drugs that originally made it a focus for pricing critics.
Copyright Bloomberg 2016
After an already tumultuous year at Valeant Pharmaceuticals International Inc., the new management cut the annual profit forecast to well below estimates and suggested there may be more bad news on the way for the embattled drugmaker.
“There could still be surprises yet to be discovered,” new Chief Financial Officer Paul S. Herendeen told analysts in his first conference call to present quarterly earnings. “I’m not trying to alarm anyone or walk away from our revised guidance. I’m just letting you know that as time passes our confidence in our forecast and our guidance will improve.”
The stock dropped 27 percent to $14 at 9:30 a.m.
Valeant once gain took investors off guard with disappointing results that pointed to declining sales at some of its key businesses. Herendeen’s comments highlighted the major challenges Chief Executive Officer Joe Papa will have regaining confidence from shareholders that had already seen a 90 percent slump in the stock over 15 months, as Valeant became the focus of outrage over skyrocketing drug prices and government investigations.
The net loss amounted to $1.22 billion last quarter after Valeant took a $1.05 billion goodwill impairment charge to write down the value of some U.S. businesses including Salix, which makes top-selling gastrointestinal treatments and has been considered one of the drugmaker’s crown jewels. Sales at Salix, which is among assets that Valeant is considering selling, dropped 5.4 percent, while dermatology sales slumped 50 percent, dragged down by lower prices and higher rebates.
“It appears Valeant’s core business continue to deteriorate, as we had feared,” David Maris, an analyst at Wells Fargo Securities who rates the stock underperform, wrote in a note to clients. “Overall, a disappointing quarter that shows Valeant on a weak trajectory.”
Papa, who joined in May after former executives testified before Congress and federal authorities started investigating the drugmaker, is now looking into divesting businesses to reduce some of Valeant’s $31 billion in debt.
Third-Quarter Miss
Excluding the writedown and other items, profit was $1.55 a share last quarter, the company said Tuesday in a statement, missing the $1.76 average of estimates compiled by Bloomberg. Revenue dropped 11 percent to $2.48 billion, short of the $2.52 billion average prediction. The shortfall was mainly driven by declining prescription sales.The drugmaker lowered its earnings guidance to $5.30 to $5.50 a share, excluding some items, from $6.60 to $7 previously. Analysts anticipated $6.49, on average.
The company repaid $450 million of its debt load in the third quarter, bringing total payments this year to $1.6 billion and closer to its $1.7 billion goal for 2016.
Valeant renegotiated its agreement with lenders earlier this year to relax terms so it is easier to use credit to pay off loans and sell assets. In a conference call with analysts Tuesday, the company said it expects to remain in compliance with its debt covenants.
Papa replaced Michael Pearson, a former McKinsey & Co. consultant who jacked up prices and scaled back on research and development. Pearson and former Chief Financial Officer Howard Schiller are the focus of a criminal probe against the company as authorities build a fraud case related to hidden ties to a specialty pharmacy that Valeant secretly controlled, people familiar with the matter have said.
Valeant is also facing investigations from Congress and the U.S. Securities and Exchange Commission over its accounting and drug pricing. In August, a major shareholder, T. Rowe Price Group Inc., sued the company, accusing its former top executives of using a secret network of pharmacies and deceptive pricing strategies to artificially inflate revenue and profit, among other things.
Papa, who joined from over-the-counter and generics drugmaker Perrigo Co., has brought in a new chief financial officer, general counsel and corporate controller. He formed a committee responsible for drug pricing, and the company has promised to follow through with a program to give hospitals discounts on some of the drugs that originally made it a focus for pricing critics.
Copyright Bloomberg 2016
