With Valeant Pharmaceuticals (NYSE:BHC) losing nearly 90% of its market cap over the last 10 months, it's perhaps easy to forget that the company still has some positive things going for it. Valeant's management will likely want to talk a lot about those positives when the drugmaker announces its first-quarter earnings results on June 7. However, investors will also want to know about the problems facing the company. Here's what to expect with Valeant's first-quarter results.
In March, Valeant said that revenue for the first quarter should be between $2.3 billion and $2.4 billion. The company also projected that first-quarter earnings would come in somewhere between $1.30 and $1.55 per share. Considering that Valeant confirmed that guidance on May 9, it would be very surprising to see anything significantly different from those ranges.
Valeant fully expected the first quarter to be weak for a variety of reasons, not the least of which was the lower pricing for products distributed through Walgreens Boots Alliance (NASDAQ:WBA). The two companies struck a deal in December where Walgreens would distribute Valeant's branded prescription-based dermatological and ophthalmological products, with Valeant cutting prices for the products by 10%.
A separate agreement between Valeant and Walgreens shouldn't have any impact on the first quarter. Valeant committed to reducing the prices for over 30 branded products for which generic versions are available by a weighted average price decrease of more than 50%. However, those price cuts don't take effect until the second half of 2016.
Perhaps the scariest number of all with Valeant's first-quarter results will be its debt. It had over $31 billion of long-term debt at the end of 2015. One of the biggest challenges for Valeant will be to service that debt load and still invest in development to grow itself.
To say that Valeant is surrounded by controversies is an understatement. However, expect at least one issue to be laid to rest. I would be surprised if Valeant didn't commit to getting back on schedule with its regulatory filings. The company already received notice of default by one bondholder because of a late filing. Valeant should cure that default by filing its 10Q report in June.
The deal with Walgreens helps to some extent with another major controversy: Valeant's drug pricing. Those discounts are at least a move in the right direction to present a better image to politicians and the public, and you can count on the company to bring them up during the earnings call. Expect Valeant's management to also highlight the recent move to cut the prices of Nitropress and Isuprel based on volume.
Valeant will probably emphasize its new management and new direction in its discussion of the first-quarter results. Joseph Papa, who became CEO in May, has a good reputation and will put his stamp on the company's operations. What likely won't be discussed is the lucrative compensation package that outgoing CEO Michael Pearson received.
Certainly, Valeant's difficulties have raised many questions about its future. The company will have a good chance to answer some of those questions in its discussion about its first-quarter performance.
While the market became excited recently over reports that the company could be bought, I suspect Papa will pour cold water on any such hopes -- at least for now. Papa was brought in to right the ship. The board will likely want him to have ample time to give it a shot before seriously entertaining any buyout offers. I'll be surprised if Papa isn't asked during the earnings call about the possibility of being acquired, though.
As I stated earlier, Valeant still has positives going for it. The distribution deal with Walgreens is a good thing. Ditto for bringing Papa in as CEO and getting a fresh face on the board of directors. There's still solid revenue coming in the doors. What Valeant has to do now is avoid new controversies, continue taking the right steps to quell the old ones, and execute well. The company's first-quarter results and discussion should provide clues as to whether Valeant will be able to do those things.