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Valeant (VRX) Rallies on Earnings Beat in Q1, Raises View

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Shares of Valeant Pharmaceuticals Inc. have rallied 11.5% after the company reported better-than-expected results for the first-quarter results on May 8. The increase in guidance for 2018 was encouraging too.

Notably, Valeant’s stock moved up 60.6% over a year compared with the industry’s gain of 2.8%.


The company’s adjusted earnings per share of 89 cents beat the Zacks Consensus Estimate of 23 cents and was also up from 78 cents per share in the year-ago quarter.

Total revenues of $1.99 billion also topped the Zacks Consensus Estimate of $1.98 billion but declined 5.4% from the year-ago quarter.

Quarter in Detail

Revenues in the Bausch + Lomb / International segment were $1.1 billion, down 3% year over year. Excluding the impact of discontinuation of divestitures, primarily the skin care divestiture, and foreign exchange, the Bausch + Lomb/International segment organically improved by approximately 2% year over year driven by growth in the Global Vision Care business.

The Branded Rx segment revenues were $593 million, down 6% due to divestitures and discontinuations and decline in the Ortho Dermatologics business. This was partially offset by increased sales in Salix which was up by 40%. Xifaxan was up 49% while Relistor improved 54%.  The FDA approved Plenvu, a 1-liter bowel cleansing preparation for colonoscopies, which is expected to be available in the third quarter of 2018.

The FDA earlier approved its new psoriasis treatment, Siliq, following which the drug was launched and expanded. The company inked a deal with AstraZeneca (AZN - Free Report) for Siliq but the agreement had to be amended. The FDA accepted New Drug Applications for Altreno (IDP-121), an acne treatment in lotion form; PDUFA action date of Aug 27, 2018 and Bryhali (IDP-122), a topical treatment for plaque psoriasis; PDUFA action date of Oct 5, 2018.

The U.S. Diversified Products segment revenues were $299 million, down 14% year over year due to previously reported loss of exclusivity for a basket of products and the impact of the 2017 divestitures and discontinuations.

Research and development expenses were $92 million in the reported quarter, down 4.2% from the year-ago quarter.

Selling, General and Administrative costs were $587 million compared with $651 million in the year-ago quarter.

The company repaid approximately $280 million of debt with cash in hand in the first quarter of 2018.

Concurrently, Valeant announced that the company will change its name to Bausch Health Companies Inc., effective July 2018.

2018 Guidance

The company expects total revenues in the range of $8.15-$8.35 billion, up from the earlier projected range of $8.10-$8.30 billion.  

Our Take

Valeant’s first-quarter earnings topped estimates driven by growth in Bausch + Lomb/International segment and Salix businesses. The company recorded organic growth for the first time since 2015.  Xifaxan had earlier achieved blockbuster status of $1 billion of sales. The company also upped its revenue guidance. The company also obtained FDA approval of Vyzulta, a treatment option for glaucoma. The FDA also approved Lumify, the over-the-counter eye drop with low-dose brimonidine for the treatment of eye redness.
New drug approvals are also expected to boost growth and offset the weakness in the dermatology segment.

After a tumultuous period, Valeant started a rebuilding process with its CEO, Joseph C. Papa. Even though it is still early to comment on the rebuilding process, but the company’s efforts to sell non-core assets and pay down huge levels of debt is commendable. The company paid down $280 million of debt in the first quarter of 2018.

However, the dermatology market continues to be challenging and is expected to decline in 2018 as compared to 2017.  

Zacks Rank & Key Picks

Valeant currently carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the health care sector are Ligand Pharmaceuticals (LGND - Free Report) and Exelixis, Inc. (EXEL - Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ligand’s earnings per share estimates have moved up from $4.20 to $4.43 for 2018 over the last 60 days.

Exelixis’ earnings per share estimates increased from 59 cents to 86 cents for 2018 over the last seven days after the company reported better-than-expected first-quarter results.

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